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Harold Demsetz on Legal History - Dictionary of Arguments

Parisi I
Institutions/law/legal history/Demsetz/Wangenheim: Initiated by Harold Demsetz's seminal paper (1967)(1), neo-institutional investigations of legal evolution typically look at specific changes of property rights regimes.
Alchian: The basic idea is closely related to Alchian's (1950)(2) optimistic account of behavioral evolution: societies tend to have institutions that reflect, and are adapted to, the current needs of this society, given their environment and their preferences.
Property rights/Demsetz: The Labrador Indians switched from open access property rights regimes to private property
Parisi I 163
when fur trade made hunting beavers more valuable to each hunter, so that the natural setting could not sustain the radically increased burden resulting from consequentially increased hunting activities.
Conditions/Demsetz: In his reappraising paper thirty-five years later, Demsetz (2002)(3) based his argument on a number of conditions that have to be satisfied to make environmental changes induce optimal institutional adaptations. In particular, he considered
(1) the number and closeness of involved persons,
(2) their productivity in solving resource allocation problems, and
(3) the complexity of this problem as relevant conditions.
If they change, most often due to new levels of specialization in production, observable property rights regimes will adapt to better solve the externality problems that become prevalent in effect, so Demsetz (2002)(4) argues.
North: The idea of institutions evolving towards efficiency is also at the heart of the earlier writings of Douglas North (e.g. 1981)(4), who grounded his account of economic history on this argument.
WangenheimVsDemsetz: Independently of whether one wants to label this functionalist Demsetzian approach as truly evolutionary or not, the argument lacks any causal explanation for why the institutions change. There is no discussion of how rules in archaic societies are made, nor is there any hint of legislators' incentives when more complex societies are discussed (mainly in the 2002 paper).
WittVsDemsetz: Many authors like Witt (1987)(5), Banner (2002)(6), Eggertson (1990(7), pp. 247—280), and Anderson and Hill (1975(8) , 2002(9)) have noted this pitfall of Demsetz's approach.
The idea has been taken up by scholars like Umbeck (1977a(10), 1977b(11)), Ellickson (1991(12), 1994(13)), and Anderson and Hill (1975(8), 2002(9)), who have argued that societies self-organize and develop property rights when law does not exist or is not enforced (prominent examples are farmer - rancher conflicts in Shasta County, mining claims during the California gold rush, Maine lobster fishing grounds, and grazing areas on the American Western frontier in the second half of the nineteenth century).
Causality: (…) the authors proffer a causal complement to Demsetz's teleological hypothesis: they identify some individuals who find it privately worthwhile to design and enforce property rights against infringing group members or outsiders.
VsUmbeck: Not all examples have remained undisputed. Clay and Wright (2005)(14), for example, challenge Umbeck's observations on mining district codes producing order. They argue that the mining district codes gave equal attention to the rights of claim-jumpers as to claim holders, whence chronic insecurity and litigation resulted.


1. Demsetz, H. (1967). "Toward a Theory of Property Rights." American Economic Review, P&P
57: 347-359.
2. Alchian, A. (1950). "Uncertainty, Evolution and Economic Theory." Journal of Political
Economy 58: 211—221.
3.Demsetz, H. (2002). "Toward a Theory of Property Rights Il: The Competition Between
Private and Collective Ownership." Journal of Legal studies 31: S653—S672.
4. North, D. C. (1981). Structure and Change in Economic History. New York: Norton.
5. Witt, U. (1987). "How Transaction Rights Are Shaped to Channel Innovativeness." Journal
of Institutional and Theoretical Economics 143: 180—195.
6. Banner, S. (2002). "Transitions Between Property Regimes." Journal of Legal studies 31:
S359-S371.
7. Eggertson, T. (1990). Economic Behavior and Institutions. Cambridge: Cambridge University Press.
8. Anderson, T. L. and P. J. Hill (1975). "The Evolution of Property Rights: A Study of the
American West." Journal of Law and Economics 18: 163—179.
9. Anderson, T. L. and P. J. Hill (2002). "Cowboys and Contracts." Journal of Legal studies 31:
S489-S514.
10. Umbeck, J. (1977a). "The California Gold Rush: A Study of Emerging Property Rights." Explorations in Economic History 14: 197—226.
11. Umbeck, J. (1977b). "A Theory of Contract Choice and the California Gold Rush." Journal of
Law and Economics 20: 421—437.
12. Ellickson, R. (1991). Order Without Law: How Neighbors Settle Disputes. Cambridge, MA:
Harvard University Press.
13. Ellickson, R. (1994). "The Aim of Order without Law." Journal of Institutional and Theoretical Economics 150: 97—100.
14. Clay, K. and G. Wright (2005). "Order without law? Property Rights during the California
Gold Rush." Explorations in Economic History 42: 155—183.

Wangenheim, Georg von. „Evolutionary Law and Economics.” In: Parisi, Francesco (ed) (2017). The Oxford Handbook of Law and Economics. Vol 1: Methodology and Concepts. NY: Oxford University Press


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EconDems I
Harold Demsetz
Toward a theory of property rights 1967

Parisi I
Francesco Parisi (Ed)
The Oxford Handbook of Law and Economics: Volume 1: Methodology and Concepts New York 2017


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