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Property Rights and the Environment


Sandy Ikeda offers a nice summary of Elinor Ostrom's views in a recent Freeman column. As Sandy notes, Ostrom is famous for documenting, through carefully done case studies, how individuals work together to solve various kinds of externality problems without recourse to formal (state) institutions.

However, Sandy follows Ostrom's somewhat confusing language in describing these voluntary solutions as "neither the state nor the market." That is true if one defines "market" narrowly to mean formal property titles to specific parcels priced and exchanged via Coasean bargaining. But surely informal, private agreements — social conventions, relational contracts, customary law, and the like — are also part of the market, broadly defined as social cooperation under private property and the division of labor. Robert Ellickson, Bruce Benson, and others have described many kinds of these informal, private arrangements.

Perhaps it's useful to distinguish between what Mises called "catallactics" — the analysis of exchange, pricing, formal contracting, etc. — with economic activity more generally, which takes place in non-catallactic settings like the Crusoe economy, the family, the business firm, etc. The arrangements Ostrom describes may be non-catallactic but, as long as they do not involve state intervention, are part of the market order, and consistent with property rights and libertarianism per se.

Peter G. Klein is Carl Menger Research Fellow of the Mises Institute and W. W. Caruth Chair and Professor of Entrepreneurship at Baylor University's Hankamer School of Business.

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