14 July 2008

The Gridlock Economy

It is always refreshing to read economics written by someone who doesn't believe that we live in Voltaire's "best of all possible worlds," a Goldilocks economy. In the real world, Adam Smith's lassiez-faire doctrine is not the answer to everything. The PropertyProf's Blog notes Michael Heller's book "The Gridlock Economy", which lives up to this challenge.

Heller offers a theoretical structure and anecdotes to suggest that while some private ownership in an economy is good, that there is powerful economic harms associated with too much ownership.

This kind of analysis is old hat in the area of old fashioned idea based intellectual property. But most critics of strong IP have argued from the assumption that the problems associated with excessive IP ownership are a product of the unique features of IP, rather than to any extent being a product of a more general problem of excessive private ownership.

The product description at Amazon.com is attention grabbing:

25 new runways would eliminate most air travel delays in America. Why can’t we build them? 50 patent owners are blocking a major drug maker from creating a cancer cure. Why won’t they get out of the way? 90% of our broadcast spectrum sits idle while American cell phone service lags far behind Japan’s and Korea’s. Why are we wasting our airwaves? 98% of African American–owned farms have been sold off over the last century. Why can’t we stop the loss? All these problems are really the same problem—one whose solution would jump-start innovation, release trillions in productivity, and help revive our slumping economy. . . .

Michael Heller has discovered a market dynamic that no one knew existed. Usually, private ownership creates wealth, but too much ownership has the opposite effect—it creates gridlock. When too many people own pieces of one thing, whether a physical or intellectual resource, cooperation breaks down, wealth disappears, and everybody loses. . . . gridlock is blocking economic growth all along the wealth creation frontier. . . . Heller zips from medieval robber barons to modern-day broadcast spectrum squatters; from Mississippi courts selling African-American family farms to troubling New York City land confiscations; and from Chesapeake Bay oyster pirates to today’s gene patent and music mash-up outlaws.

The Property Prof's Blog explains some of the idea:

The book's core points build on insights that Heller first developed in The Tragedy of the Anticommons: Property in the Transition from Marx to Markets. The basic idea of the anticommons is that highly-divided ownership of property can lead to the underutilization of resources. If too many people have control over a resource, decisionmaking gets gummed up, transaction costs multiply, and resources are underused. Heller's iconic example of the anticommons is Moscow storefronts, where the right of many "owners" to veto various uses led to stores that remained vacant while kiosks thrived on the sidewalks just outside. If the tragedy of the commons can be seen as being caused by an absence of property rights, the tragedy of the anticommons can be seen as being caused by an overabundance of property rights. Heller argues that we should be seeking the sweetspot between too much and too little property: "Well-functioning private property is a fragile balance poised between the extremes of overuse and underuse." (p. 19).

The Gridlock Economy explores this theme in a number of interesting settings, including biotech patents, broadcast spectrum, land use regulation, and land assembly. My one quibble is that the book occasionally crams problems that don't seem to fit into the anticommons category. One example is the fiasco of underutilized broadcast spectrum owned by television broadcasters. (p. 96) If the broadcasters had stronger property rights in this spectrum, it probably would not be underutilized to such a degree. This particular problem therefore seems to be more about too little property, rather than too much property.

The "anti-commons" may be a new and useful way of formulating the idea, but its natural complement, "the collective action problem" is a classic justification for government action in a wide range of circumstances, even where a government doesn't require regulatory power other than the power to tax.

Closer to home, there are two areas where are forefathers went too far in the direction of private ownership of natural resources.

One is oil and gas law, where including oil and gas rights in a surface owner's right absent an express exception, provides lottery-like windfalls to some landowners and inefficient strategies for drilling mineral fluid mineral resources that have only partially been alleviated by various unitization regulations. In my view reservation of mineral rights to the state, subject to leasing by parties seeking to exploit those resources, from the get go, would have been a better policy.

I am similarly inclined to think that while the current scheme of prior appropriation water laws of the American West are probably superior for an arid environment to the riparian rights approach found in the Eastern United States, that prior appropriation remains inferior to a system in which all water rights would be vested in the state subject to lease for limited period of time by potential appropriators. The tragedy of the anti-commons produces inefficient use of Western water, in which fractionated ownership, vested interests, and excessive transaction costs impair the value of a scarce resource.

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