1. Toward a Theory of Property Rights
Harold Demsetz

2. The function of property rights
In the world of Robinson Crusoe property rights play no role.
To achieve a greater internalization of externalities
Some costs and benefits are not taken into account by users of resources whenever externalities exist.
But allowing transactions increases the degree to which internalization takes place.

3. Military draft
The taxpayer benefits by not paying the full cost of staffing the armed services.
The costs which he escapes are the additional sums that would be needed to acquire men voluntarily for the services or those sums that would be offered as payment by draftees to taxpayers in order to be exempted.
The draft is an externality caused by forbidding negotiation.

4. A law which establishes the right of a person to his freedom would necessitate a payment on thepart of the taxpayer sufficient to cover the cost of using that person’s labor. The costs of labor thus become internalized in the taxpayer’s decisions.
A law which gives the taxpayer clear title to slave labor would necessitate that the slaveowners take into account the sums that slaves are willing to pay for their freedom.
These costs thus become internalized in decisions although wealth is distributed differently in the two cases.

5. The emergence of property rights
Property rights develop to internalize externalities when the gains of internalization become larger than the cost of internalization.
Not necessarily a conscious endeavor to cope with new externality problems
Hit-and-miss procedures
In a society that weights the achievement of efficiency heavily, their viability in the long run will depend on how well they modify behavior to accommodate to the externalities.

6. Indians
Montagnes who inhabited large regions around Quebec did not develop private rights to land in the mid-17th century. (Jesuit Relations)
By the mid-18th century allotted hunting territories were relatively stabilzied.

7. Fur trade The value of furs to the Indian was increased considerably.
As a result, the scale of hunting activity rose sharply.
Both consequences must have increased considerably the importance of the externalities associated with free hunting.
Animal resources were husbanded. Sometimes conservation practices were carried on extensively.

8. Southwestern Indians The absence of similar rights
There were no plains animals of commercial importance comparable to the fur-bearing animals of the forest.
Animals of the plains wandered over wide tracts of land---high cost of preventing the animals from moving to adjacent parcels. (Forest animals confined their territories to relatively small areas.)

9. The Rhino’s Horn: incomplete property rights and the optimal value of an asset
Douglas W. Allen

10. Demsetz (1967) notes that property rights emerge when the [exogenous] benefits of establishing those rights exceed the cost.
Barry Field (1989) notes that “encroachment” may increase with increases in values. Additional resources are required to achieve the same effective level of exclusion that pertained before.
Allen (2002): When the costs of enforcing property rights to exceed their benefit for assets, previously privately held assets may revert to the public domain.
To lower the gross value of the asset as a possible method of maintaining the private property rights

11. Rhino’s horn Its chief use is in Asian medicine.
The governments of Africa manage rhinos as common-property resource in conservation areas and on public lands.
Since the 1970s, there has been an international ban on the trade of rhino horn, making it costly to develop private ranges to farm the animal.
A black-market trade has developed. Rhinoceros populations fell considerably: between 65,000 and 100,000 black rhinos in 1970 and between 3,000 and 4,000 [in 2002].

13. Dehorning
Drugging the rhino and sawing off the horn just above the skin line. The horn eventually grows back, and the procedure is repeated every months.
Dehorning essentially eliminated poaching in northwest Namibia when it was first reduced.
Zimbabwe has not had a rhino poached since early in 1994.

14. Penal colonies
The first British Transportation Act was made law in 1717 and allowed for prisoners to be sent to the Americas as convict workers.
It ceased with the American Revolution.
The practice continued well into the 20th century and was conducted by virtually every colonial power. Ex. Britain sent convicts to Bermuda, West Africa, Mauritius, Singapore, Malaysia, and Australia.

15. Why? Penal colonies deterred the large immigration of free labor.
Cheap prison?
₤439,000 per year in Australia
₤435,000 per year in Britain
Crime deterrence?
Options for the poor in Australia were no worse than options at home.
Individuals committed crimes for free passage.

16. An alternative explanation
To lower the value of the colony and make it less attractive to a foreign aggressive power
History is full of examples of colonies being taken over by other powers.
An option is to allow free citizens to populate the colony; but if the colony is extremely remote, the option is not attractive.
A foreign power to take over prisoners?