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Friday, June 4, 2004

Property Rights on the (Internet) Frontier
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Amazon just delivered The Not So Wild, Wild West: Property Rights on the Frontier, by Terry Anderson & Peter Hill (Stanford Univ. Press, 2004).

The authors' topic is the evolution of institutions of property rights in the West during the 19th Century, and how this evolution created the conditions for trade, cooperation, and prosperity -- and enabled people to avoid the "tragedy of the commons," over-use and destruction of unowned resources. (They also discuss the tragedies that ensued when appropriate institutions failed to develop, as in dealing with the Native Americans.)

The authors note: "The lessons from the American West transcend the era by providing insights into the causes of efficient and inefficient institutional evolution," such as the failures that caused the collapse of the communist states. Further, "Property rights that evolve from the bottom up -- as opposed to the top down -- are much more likely to conserve resources and promote investment. When property rights are dictated from central authorities with less stake in the outcome, time and effort are often wasted . . . and productive investment suffers."

The subject is crucial to the world of the Internet and telecommunications, where new technologies require the development of new institutions of property rights. Get these right and we flourish. Get them wrong, and we wallow in stagnation.

Two examples:

1) Telecom. As PFF discusses endlessly, the FCC's long effort to impose its vision of appropriate property rights on the telecom network (viz., to make it into a commons) has been a continuing disaster. One benchmark: According to the research firm Barra, telecom's share of the S&P 500 is now about 3%, a historic low. From January 1977 (when the data begin) to July 2000, it rarely dipped below 6%, and in 1993 it reached 10%.

2) H.R. 107, The Digital Media Consumers' Rights Act, is an attempt to freeze property rights into a pre-Internet model, in the name of academic abstractions about what they "should" be. (The idea is akin to the Medieval notion of the "just price.") The goal of the proposed law is to foreclose the development of bottom-up definitions of property rights through the interaction of producers and consumers in the economic and cultural marketplace.

Instead of holding yet more rounds of dreary and repetitive hearings on these topics, Congress and the FCC should take a day off and read Anderson & Hill.

posted by James DeLong @ 9:37 AM | General

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