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EnvironmentProperty Rights - The Economics Network


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									Environmental Property Rights

   Anderson, T.L. & McChesny “Raid or
   Trade? An Economic Model of Indian-
   White Relations”, Journal of Law and
      Economics, Vol. 37 (1), pp39-74
           Research Questions
• This paper explains property rights in America
  from an economic perspective.
• Examines history of Indian-White relations in the
  USA, in terms of the allocation of resources
  (particularly land).
• Analogy between the evolution of property rights
  and potential litigants’ decision to settle or go to
• The paper presents theory and evidence of
  relations evolving over a period of time from
  relative peace (with contracts for property rights)
  to a period of violent conquest.
   Economic Model of Negotiation
          versus Taking
• Evolved from two main strands of literature
• (a) the choice between contact and violence
  (Umbeck, 1981) . Basically distribution of rights
  are stable if people respect them or as long as
  those who do not agree can be excluded.
• (b) Settlement-Litigation Models
  Decisions either to settle or litigate also provide
  a useful framework of whether or not to go to
  war. 4 stages have been identified:- harm,
  assertion of claims, bargaining (and maybe
  settlement) and litigation (where no settlement
     Economic Model of Negotiation
• (a) Harm refers to violations of property
  rights of one group by another. European
  settlers’ claims were traced to charters
  granted by their respective sovereigns
  (though most grantees were more inclined to
  settle permanently without negotiating with
  Indians), while Indians simply regarded
  whites as trespassers with no rights to the
  land they claimed. Sets up the stage for
  asserting claims
   Economic Model of Negotiation
          versus Taking
• (b) Assertion of claims
  Two things determined whether or not
  Indians asserted claims to the land;
  (i) whether there is an expected loss from
  continued trespass - dependent on value
  of resource and the cost of asserting the
  claim by negotiating or fighting
  (ii) the ability [and credibility] to fight is a
  requirement for asserting a claim. Hence
  there can be no contract if one side can
  simply take what it wants at very little cost.
            Economic Model of Negotiation
                   versus Taking
    • When both Indian and Whites possess the
      credibility to fight, negotiations take place.
                                                Figure 1
Value in $                          MBI



        0                     L2                           LAND
                    L1   L0              LMAX
    Economic Model of Negotiation
• Importance of Figure 1 is that there are zones
  delimiting different decisions about asserting a claim
  and these zones depend on each side’s MB and MC.
• As long as marginal costs rise and eventually exceed
  the value of land, there will always be areas where it is
  not worth defending (for Indians) or taking (for whites).
  Indians will not expend military resources for region 0-
  L1, while whites will not fight beyond L2. However,
  between L1 and L2 controversy will arise; it is worth the
  Indian’s while to defend and the worth the whites’
  while to negotiate or take. Hence a contract or war will
  ensue, depending on the credible force at the disposal
  of each.
                 Raid or Trade
• In the zone of controversy parties chose whether to
  fight or bargain in order to reach a solution. The
  interest of the two parties diverge on how to share
  the surplus but converge with respect to an efficient
• Under certain assumptions (full and accurate
  information?) conflict will always be resolved through
  negotiation since warfare imposes deadweight loses.
  Still perfect information may not be necessary to
  avoid warfare-- Indians may simply assert a claim
  after trespass by whites and the dispute can
  peacefully be negotiated. A surplus [which can be
  shared] for both claimants is necessary for choosing
  negotiation rather than fighting.
                  Raid or Trade
• For Indians SI=CFI-GFI-CNI>0
  – Where SI is surplus from negotiation
    CFI is costs of fighting
    GFI value of land gained from fighting
    CNI is cost of negotiating a peaceful solution
• Ceteris paribus, as CFI rises, SI rises; as GFI or
  CNI rise SI falls.
• Same situation applies to whites Sw=CFw-LFw-
• S=SI+Sw > 0. This is the sufficiency condition
  for negotiation
                  Raid or Trade
• S=SI+Sw < 0 is the sufficiency condition for
  fighting is the absence of a surplus from
  – S=(CFI+CFW) -(CNI+CNW) + (GFI-LFW).
  – Letting CFI+CFW= CF and CNI+CNW=CN, if the
    value of disputed territory is the same for whites as
    for Indians i.e. GFI=LFW, then
    S=CF - CN <0 is the sufficiency condition for
• Hence S is the difference CF and CN. If CF is
  always +ve and CN is always 0, then the
  sufficient conditions for fighting will never be
  met (Umbeck, 1981)
                Raid or Trade
• When uncertainty is introduced into the model,
  the sufficient conditions for fighting may be met
• Conditions for fighting are mainly (a) Information
  asymmetry, (b) transaction costs, (c) collective
  bargaining and public choice.
• Information asymmetry includes Indians not
  knowing the efficiency of whites’ weapons
  (repeating rifles, machine guns etc.).
• Still negotiation seems to be the rule and fighting
  the exception in empirical literature (out of 10
  disputes, only 1 eventually goes to court)
                 Raid or Trade
• Transaction costs.
  – Language and customs barriers can be an obstacle
    to negotiations (particularly sophistication with
    English and written contracts). Many Indian chiefs
    did not fully understand the treaties they had
  – Property rights impediments. Despite the
    willingness of the immigrants to purchase there may
    well have not been anyone conclusively from whom
    to buy (e.g. nomadic tribes or where more than one
    tribe used the same resources). Hence negotiation
    costs rise.
                 Raid or Trade
– Collective Action and Public Choice. The analogy
  between litigation and treaties is imprecise. While
  settlement of a contract makes all parties better off
  and litigation leaves them worse off the same may
  not be the same of a treaties and warfare.
  Treaties often create a Prisoner’s Dilemma
  situation. Even if the total benefit of a treaty exceed
  its costs, certain parties may find it in their interests
  to defect from the agreement. There is an agency
  problem (a monarch may agree on behalf of the
  people without their consent something that
  imposes costs on them. This reduces negotiation
  surplus and increases the likelihood of war.
                 Raid or Trade
• Coalition costs. The cost of negotiating and
  cost war depend on relative costs of required td
  trade or to raid. The costs of negotiation usually
  includes the costs of handful of skilled
  negotiators while the cost of war is borne
  through a much larger number of individuals
  numbering into thousands or millions-- a part-
  time militia or a standing national army. The
  fixed costs of a standing national army (as
  opposed to that of a group of negotiators is very
  large) but lowers the marginal costs thereof
  such the likelihood of war also increases.
                Raid or Trade
Incidence of fighting costs. The decision to go to war
  (or negotiate) is usually made by government
  officials and tribal leaders. Just as dispute
  resolution though the courts is a negative sum gain
  forced onto collective choice by an impartial jury, so
  is war forced onto the public by politicians and
  bureaucrats (including military personnel). These
  usually do not individually bear the relevant costs
  (they usually shift the costs, though, onto others
  and in the process undervaluing CF). For top
  military officers (and bureaucrats) also observe that
  warfare increases budgets, potential distinctions in
  battle etc.
               Empirical Evidence
• The economic model is corroborated in the early
  period of colonisation.
• The US government bought land only when the
  Indians were prepared to sell (though the US
  government was a monopsony)
• Evidence that in the first days (1620s) Indians were
  prepared to accede to whites assertion of claims to
  land. e.g. Apparently the Pemaquid tribe gave 12,000
  acres to English colonialists. In fact, until the Mexican
  War in 1840s, it was not worth the Indians’ while to
  stop trespassing by whites, reprehensible though
  some whites’ behaviours may have been.
• Avoidance of zone of controversy by relocating Indians
  to reservations (initiated by President Jackson).
         Empirical Evidence
• Trading dominated raiding in the history of
  Indian- whites relations.
• Most of the trespassing in the late 18th and
  early 19th centuries was to expel white
Year      Number of battles Number of treaties
1790-99   7                 10
1800-09   0                 30
1810-19   33                35
1820-29   1                 51
1830-39   63                84
1840-49   53                18
1850-59   190               58
1860-69   786               61
1870-79   530               0
1880-89   131               0
1890-97   13                0
• Information Asymmetry
  – Both sides realised the importance of the other side
    possessing accurate information about them (whites
    shipped some Indians back to Europe to impress
    them with extent of white technology, population
    and culture) and frequently peacefully demonstrated
    their technology to impress the Indians with
    pointlessness of war.
  – Information asymmetries increased as the frontiers
    pushed westwards and for several reasons. Many
    tribes were nomadic and, therefore, information did
    not always filter to down to them. On the whites’
    front different landscapes and climate resulted in
    different Indian warfare tactics and also poor
    information about who, precisely, was hostile.
– Changing technology resulted in Indians being
  unduly optimistic about winning (information about
  new technology being unavailable). Not always the
  case (as Custer’s troops were to discover to their
  cost). Also the Indians were superior horseman.
  The key was not so much the superiority of one
  side’s technology but whether that technological
  changes were unknown or underestimated. In 1867
  at the Wagon Box Fight, the Sioux lost over 1137
  men leading one of their chiefs to infer, from the use
  of new rifles, the use of a “supernatural power” by
  the immigrants.
– When whites met tribes with well-defined and
  divestible property rights, they tended to trade
  since the costs of negotiation fall. Alternatively,
  they would raid when they met those without
  well-defined rights.
– As the zone of controversy shifted westwards,
  growing Indian-white violence could be traced
  to agency costs which made negotiated
  outcomes unenforceable (most violations of
  treaties were not by leaders of the US
  government or of the tribes) but by groups who
  could only be controlled at high costs.
– Standing army versus a militia. Throughout the 19th century,
  whites substituted full-time professional soldiers for local
  militias, with garrisons and forts. This increased the number
  of battles as the incentive to fight (as opposed to negotiate)
  rises with the decline in marginal costs of fighting.
– A standing army meant full-time officers, bureaucrats whose
  careers and budgets could only be advanced by fighting
– The number of battles with Indians rose with the size of the
  standing army. In 1845 the army consisted of 8 509 officers
  and men. In 1846-48 (the onset of the Mexican War), this
  rose to 47 319. By 1860, it had fallen down to 16 000, but
  rose again during the Civil War to 1 million men (the Union
Years                Mean Annual Battles
A* 1841-45             2.8
   1849-54             8.4
B† 1856-60            31.6
  1865-69            110.4

•*The means are significantly different at 0.01
•†The means are significantly different at 0.01
• Regression models were used to test the
  effect of the Mexican and Civil Wars on
  Indian Battles (1790-1897).
• The effect of the Mexican War was a
  discontinuous increase of some 12 battles
  and that of the Civil War some 25 battles
  per year.
• The effect of a growing army was also
  tested and was found to have a significant
  and positive impact on the number of
                Final Conclusion
• Economic analysis (costs and benefits) helps to
  explain the evolution from negotiation to warfare in
  resolving disputes between Indians and whites, rather
  than “glib” references to changes in ideology.
• This episode of American history demonstrates the
  importance of property rights. Well-defined and
  divestible property rights are amenable to disputes
  being resolved through negotiation while their absence
  normally leads to warfare.
• It was only through the substitution of a standing army
  for a local militia that war rather than negotiation
  became cheaper.

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