Reading notes on property rights and institutions

Berge, Erling Research Report Reading notes on property rights and institutions Centre for Land Tenure Studies Report, No. 02/24 Provided in Cooperation with: Centre for Land Tenure Studies (CLTS), Norwegian University of Life Sciences (NMBU) Suggested Citation: Berge, Erling (2024) : Reading notes on property rights and institutions, Centre for Land Tenure Studies Report, No. 02/24, ISBN 978-82-7490-322-7, Norwegian University of Life Sciences (NMBU), Centre for Land Tenure Studies (CLTS), Ås, https://hdl.handle.net/11250/3133785 This Version is available at: https://hdl.handle.net/10419/300302 Standard-Nutzungsbedingungen: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden. Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen. 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If the documents have been made available under an Open Content Licence (especially Creative Commons Licences), you may exercise further usage rights as specified in the indicated licence. https://creativecommons.org/licenses/by-nc-nd/4.0/ Norwegian University of Life Sciences (NMBU) Reading Notes on Property Rights and Institutions Erling Berge Centre for Land Tenure Studies Working Paper 02/24 ISBN: 978-82-7490-322-7 Reading notes on property rights and institutions _________________________________________________________________________ii Reading notes on property rights and institutions by Erling Berge © Content is licensed under a Creative Commons Attribution-NonCommercialNoDerivs 4.0 International. Cover Photo © Erling Berge ISBN: 978-82-7490-322-7 Published in 2024 as CLTS Report 02/24 Department of Property and Law, Faculty of Landscape and Society, Centre for Land Tenure Studies, The Norwegian University of Life Sciences (NMBU), N-1430 Ås, Norway Reading notes on property rights and institutions _________________________________________________________________________iii Abstract The present work is a collection of essays. The first one is new, written for the collection. Then follows 7 separate essays of varying age. They are named On the classifications of property rights A property rights perspective on institutional change in the welfare state On the nature of welfare goods Privatization and the nature of welfare goods On the regulation of professions On the assessment of property rights systems Property rights theory and sustainable resource utilization They are all concerned with the nature of property rights and how this helps us understand various aspects of the Norwegian welfare state Key words: property rights; collective action; trust ownership; typology of goods; welfare state; privatization; professions; resource utilization; commons JEL codes: P48, Q15, Q28, Z13, K11 Reading notes on property rights and institutions __________________________________________________________________________iv CONTENTS Abstract iii Table of content iv List of tables v List of figures v Preface vi A starting point: On the fundamental importance of property rights 1 NOTE 1: On the classifications of property rights 9 NOTE 2: A property rights perspective on institutional change in the welfare state 37 NOTE 3: On the nature of welfare goods 43 NOTE 4: Privatization and the nature of welfare goods 59 NOTE 5: On the regulation of professions 77 NOTE 6: On the assessment of property rights systems 93 NOTE 7: Property rights theory and sustainable resource utilization 103 APPENDIX Some data on the consumption of welfare goods according to class 125 REFERENCES 130 Reading notes on property rights and institutions __________________________________________________________________________v LIST OF TABLES Table 1.1 The everyday conception of property 11 Table 1.2 A classification of legally recognized property relations 13 Table 1.3 Bundles of rights associated with positions in the resource management system 20 Table 1.4 Ownership roles in trust ownership 22 Table 1.5 Typology of goods 23 Table 1.6 Types of actors, types of goods, and types of regimes 28 Table 2.1 The everyday ideas of property rights 38 Table 2.2 Hohfeld's ideas of legal rights 39 Table 2.3 Hohfeld's ideas of legal rights and their negation 40 Table 3.1 Types of goods available for the welfare state 45 Table 3.2 Various ways of handling externalities 52 Table 4.1 Examples of "mixed economies" in the provision of welfare goods Table 4.2 Interrelations of processes involved in the production and consumption of welfare goods 63 67 Table 5.1 The property rights aspects of the relations in the doctor-patient role 79 Table 6.1 Aspects of a property relation 95 Table 7.1 The tragedy of the commons. Payoff matrix in a game of "chicken" Table 7.2 The tragedy of the commons. Payoff matrix in a game where free riding has turned the game of "chicken" into the game of "prisoner" 108 112 Table 7.3 Defining characteristics of property relations in common property 119 Table 7.4 Types of resources 121 LIST OF FIGURES Figure 1.1 Hierarchy of rights 20 Figure 4.1 Public goods, club goods, positional goods, private goods 68 Reading notes on property rights and institutions __________________________________________________________________________vi PREFACE The present work is some kind of status report on my main interest (as apart from my main activities) for the last several decades. It started as a collection of the papers I had written since I came to The Department of Land Use Planning in 1984. However, they are not reproduced as they were presented. All of them have seen extensive rewriting, and some are now divided among several. The various parts of the present manuscript has been presented in at least 11 meetings. The first might have been a session at the XXVIII World Congress of the International Institute of Sociology in Albufeira, June 1986; then in a workshop at the XXIXth International Congress of the International Institute of Sociology, Rome, June 1989; a seminar at the Institute of Social Research and the Institute of Applied Social Research, Oslo, January 1990; a session at the Annual Conference of the British Sociological Association, Guildford, April 1990; a working group at the Norwegian National Sociological Conference, Geiranger, May 1990; a working group at the European Association of Development Research and Training Institutes General Conference, Oslo, June 1990; a working group at the Vilhelm Aubert Memorial Symposium on "The Functions of Law in the Development of Welfare Societies", Oslo, August 1990; The national conference of sociology 1992, Mortsund, Lofoten, June 1992; The III. World Conference of IASCP, Washington, September 1992; the conference "Common property regimes: Law and management of non-private resources", February 1993; at the Workshop on the Workshop, Bloomington, IN, USA, June, 1994; the Workshop in Political Theory and Policy Analysis, Indiana University, Bloomington, December 1998. I appreciate the comments received on these occasions. Some people have taken the time and effort to read some of the original papers and shared with me their reactions. In particular my thanks go to Trond Petersen, Natalie Rogoff Ramsøy, Michael Wallerstein, Ulf Torgersen, Lise Kjølsrød, Oddbjørn Knutsen, Ole Petter Opsand, Ottar Brox, Hans Sevatdal, and Knut Boge. My second thoughts, as presented here, do not often measure up to the advice I received. The collection of notes started with the publication “Berge, Erling. 1990. Some Notes Towards a Property Rights Perspective on Institutional Change in the Welfare State. INASNOTAT 1990:9. Oslo: Institutt for anvendt sosialvitenskapelig forskning (INAS)”. The number of notes was expanded during the 1990ies. But as I entered the 2000s my attention was diverted until I became a pensioner in 2016. That allowed time to look into old papers and projects. I think some of the notes still may hold some interest. Erling Berge May 2024 Reading notes on property rights an d institutions    __________________________________________________________________________________ 1  A starting point Erling Berge: ON THE FUNDAMENTAL IMPORTANCE OF PROPERTY RIGHTS Let us start with the fundamental conclusion. Property rights have as purpose to provide people with security and predictability: security of income and predictability of behaviour of people around them. A convenient starting point for our investigation is Douglass C. North's short and very readable book from 1990 "Institutions, institutional change, and economic performance". Here he explains: “Institutions are the rules of the game in a society or, more formally, are the humanly devised constraints that shape human interaction” North (1990, 3). This is a starting point, but it certainly is not the whole story. Arthur L. Stinchcombe (1997) reminds us that large scale institutions applies to organisations as well as individual actors. At the core of a large scale institution we find a bureaucracy that is staffed and created to do a job of regulating organisations and individual actors. Institutions are more than just rules. For a rule system to become an institution it needs guardians charged with the interest and authority to monitor and enforce the rule system. Hence, whenever we find an institution we also find a group of people with a mandate to watch the performance of the rules. At the most elementary level the group of guardians will be the people of the community who devise the rules. In modern states we expect in most cases to find a bureaucracy as guardians. These guardians are human beings with beliefs and values, they have less than perfect knowledge and they have personal as well as class interests. Therefore, the job performance of the bureaucrats can be seen as a distinct and separate force besides the body of rules. But neither is this enough as a starting point. To understand institutions we also need to see the driving forces in their genesis. The rules we are talking about here will usually be thought of as legal rules promulgated by a central power like a state. But their origin is much closer to our everyday life. The ordering of our everyday lives requires conventions and norms that we learn to follow at an early age. As communities grow people find that conventions, like for example driving (with horse and carriage) on the right side (or the left side) of the road are useful as long as everybody follow them. Many local conventions and norms will, if they are useful, become part of the legal code of a larger community. Rules and regulations require Reading notes on property rights an d institutions    __________________________________________________________________________________ 2  monitoring and enforcement to be effective. This monitoring is most often done by each person watching both himself and his neighbors with an eye to compliance with the norms they all had learned. This provides a powerful link between institution and behavior. A very readable introduction to this link is provided by Mary Douglas in her book "How Institutions Think" (1986). Douglas' emphasis is on ways of thinking, the categories we use to classify the realities we observe and how these relate to the rules we have learned to obey. But the learning of behaviour never stops. One may conclude that Pálsson (1998) exploits this when he calls for establishing a link between the individual learning of the fishermen and the collective rulemaking of the fisheries management. Where do property rights come from? So where do these institutions governing our economies come from? An answer to this question is way beyond the scope of these reading notes. The various approaches to the study of societal institutions in the various sectors of society give partial glimpses of the way they currently are working. And the theoretical reconstructions of their internal logic give glimpses of why certain aspects of them are so persistent. But an understanding of the historical genesis of the current structures is not yet within reach. However, that said, I cannot resist mentioning some of the current discussions. One of the more recent surveys is Graeber and Wengrow (2021)'s book "The dawn of everything: a new history of humanity". On the question of private property they conclude that its origin is found in the ideas of the sacred (see pages 156-163). Below in NOTE 1 it is suggested that if something is abundant people usually will not bother to create property rights. In the prehistoric communities without authoritarian rulers that Graeber and Wengrow discuss, the 'objects' of most importance seemed to be social constructs such as incantations or objects needed in rituals asking the gods for help or support. These social constructs were most often treated as personal private property jealously guarded. One of the defining characteristics of private property is the ability to exclude other persons from using or enjoying the property. Thus there can be a link between the sacred and the idea of private property. The link between the sacred and the idea of property is earlier suggested by Godelier ([1984] 1986, 75-81). The sacred is clearly a social construct in the meaning of Searle (2010). His discussion of institutions is well worth considering. Searle's first book (1995) was named "The Construction of Social Reality", and was clearly an allusion to Reading notes on property rights an d institutions    __________________________________________________________________________________ 9  NOTE 1 Erling Berge: ON THE CLASSIFICATIONS OF PROPERTY RIGHTS: A survey of literature1 Introduction A classification of property rights involves three classes of phenomena: the “thing” which is subject to being property, the actors “owning” these “things”, and the interests of the rest of society, the "non-owners", in the ownership relation. Hence we may organise our investigation around three questions:  Is there any regularity in the kinds of objects (i.e. rights or goods) that can be made into property?  Is there any regularity in the types of subjects which may hold property (types of owners)?  Is there any regularity in the rules delineating owners from non-owners? The answer to the first question seems to be no. Historical and cross-cultural studies seem to show that while there within a society may be clear and coherent rules of what can be made into property, for the general case there are absolutely no consistent classification of what can be recognised as property and what cannot (Godelier [1984] 1986). The most one is able to say is that if something is abundant (e.g. air) people will usually not bother to make it into property. For the present discussion we shall of course have land at the back of our mind, not so often the copyrights to a journal article. The second question leads us to the answer that three different types of entities are usually recognised as owners:  a state (or its equivalent) may hold property,  properly defined and legally recognised groups/ collectives (such as villages, tribes, other local communities, families, user associations, NGOs (non-governmental organisations), and business corporations) may hold property, and  individuals may do so.  1 This is a revised paper, first written as a background for 2 other papers Berge and Aasen (2001) and Berge (2002). It was also delivered to COST Action E19 in 2001 (Glück et al. 2003). Parts of this NOTE is found in Norwegian in Berge (2011). Reading notes on property rights an d institutions    __________________________________________________________________________________ 10  Corresponding to these types of owners one speaks of state property, common property, and private or individual property since the rules delineating owners from non-owners often differ for the various types of owners. The important distinction between types of owners lies in the differences in how goals are decided on and action plans formulated and acted upon. For individual actors, goals emerge through a cultural process. These are acted upon within the constraints posited by established property rights and the incentives of relative prices. Relative price is here seen as a general concept summarising the relation between effort and benefit. People tend to choose within their information constraints the available action alternative promising the most benefit per unit of effort. In this sense choices are bounded rational (Simon 1957, 1986). Collective actors are comprised of individuals each with their own goals. The formulation of collective goals as well as action plans is therefore subject to the problems of collective action (Olson 1965, Hardin 1982). But also these actors are subject to the constraints of established property rights, the cost of getting appropriate information, and the incentives of relative prices. The state is a particularly important category because it has the power to redefine property rights and relative prices in a variety of ways, but always within constraints from culture and social structure. The state is often an owner with direct responsibility for large areas. It is always a stakeholder in the sense of representing the public interest in how the various resources are used. In rule-of-law states its position as resource owner is subject to established property rights and procedural rules of law making. In other states the two roles of law maker and resource owner tend to become confounded. The last question we raised about any regularity in the rules delineating owners from non-owners can be answered simply in terms of the differences in legitimate powers assigned to them. But this is an answer that needs much more explanations. We have to start asking about what property rights really are. Reading notes on property rights an d institutions    __________________________________________________________________________________ 11  What are property rights? At the outset it may be convenient to distinguish between three concepts of property:  property as understood in the everyday world of common people,  property as understood in the jurisprudence of property, and  property as understood in the social sciences. These different conceptions of property are successive generalizations of the former. They are nested in that the legal concept of property builds on and implies the everyday concept of property in the same way as the social science concept builds on and implies the legal concept of property. The everyday conception of property rights Our everyday conception of property is clear in its main implications. A hypothetical opinion poll about the differences between mine and "thine", or what I can do with mine, what you cannot do with mine, what you can do with yours and what I cannot do with yours would reveal fairly unanimous opinions. Snare (1972) investigated the meaning inherent in the everyday concept of property. He found it could be described by six types of rules, three defining the rights of the owner and three types of rules regulating the relation between owner and non-owners (see Table 1.1). Table 1.1 The everyday conception of property Ownership rights:  The owner has a right to use his property, meaning, o it is not wrong for the owner to use his property, and o it is wrong for all non-owners to interfere with the owner in his use of his property.  Non-owners may use the property of the owner if and only if the owner gives his permission, and  The owner may permanently or temporarily transfer his rights as defined by rules 1. and 2. to specific other persons by consent. Relational regulation:  Punishment rules: regulating the cases where non-owners interfere with an owner's use of his property.  Damage rules: regulating the cases where non-owners cause damage to someone's property.  Liability rules: regulating the cases where someone's property through either improper use or neglect causes damage to some person or the property of some person. Source: Snare (1972) Reading notes on property rights an d institutions    __________________________________________________________________________________ 12  Snare (1972, pp.203-204) discusses the meaning of "right to use". The conclusion is that an owner acting in a society is bound not only by ownership to any tools used in acting, but first of all by rules regulating activity within the society independent of ownership to any tools used in the action. Thus the everyday conception of ownership presupposes all other rules within the society: the extant institutional structure (North 1990, 3). Most people would no doubt recognise these propositions as a rather obvious description of their everyday world. If, however, one asked about the purposes of property: why do we have such a thing as "property", most people would be at a loss for an immediate answer. Prompting farmers and landowners to justify their possessions, Newby, Bell, Rose and Saunders (1978) found four types of justificatory ideologies they called capitalistic, individualistic, collectivistic, and altruistic justifications. Those turning to capitalistic justifications emphasised that their property was reward for hard work and risky investments. Those using individualistic justifications compared the large estates to everyday possessions like clothes or cars. The collectivistic justifications argued that wise management of property created work and income for many people besides the owner. And the altruistic justifications saw the owner only as a steward for future generations. It is no coincidence that these are the main arguments used by philosophers to justify property (For reviews see Schlatter (1951), Reeve (1986), Waldron (1988), Munzer (1990)). The jurisprudence of property rights Snare (1972) in his investigation of the everyday concept of property provides a bridge between this concept and the legal concept. A right, as seen from the point of view of the right-holder, is an expectation about the behaviour of other actors affected by the exercise of the right. Coleman (1990a, 45-64)'s discussion of rights to act is instructive here. A property right, then, is an expectation about the behaviour of all nonowners. It is different from other rights (non-property rights) in that the expectation is legitimate and relates to the appropriation of reality. The nonowners as well as the owners accept it as legitimate. A right recognised as a property right have in developed democratic societies been given special Reading notes on property rights an d institutions    __________________________________________________________________________________ 13  status, protecting the holder of the right both from non-holders and from the state. If a legal system recognises a right as a property right, special procedures are used and the holder of the right is given special remedies to help enforcing the right against contenders. The process of how a right comes to be regarded as a property right is not well understood, but it would seem to be connected to a process of legitimization of authority in relation to the development of a conception of justice. In other words it is tied to the development of legitimate and just use of power. It may in this context be instructive to study in more detail the discussion of "New Property" that was initiated by Reich (1964) asking about the role of government in granting individuals various forms of wealth "subject to conditions which express 'the public interest.'" We shall return to his paper below. In Norway a focused study of the history of land rights to the lands used by Sámi may be instructive. Relations among people are dual in nature since they can be experienced from two perspectives. By the nature of the problem, to regulate the streams of benefits from human activities, a property relation has to be an asymmetrical relation. Hohfeld (1913, 1917) saw this and found that rights recognized by law had a dual asymmetrical nature. His project was to describe legal rights in general in as precise language as possible (see Munzer (1990, 17-22)), but applied to rules specifying the relations between one (or more) owner(s) and all non-owners in regard of some entity the owner(s) regard as their property his typology also presents a classification of the various legally recognised property relations. They to fall into four pairs: Table 1.2 A classification of legally recognized property relations IF OWNERS HAVE THEN N ON-OWNERS HAVE Use aspects 1. claim-rights duties 2. p rivileges no rights Exchange aspects 3. p owers liabilities 4. immunities no powers Source: Hohfeld (1913, 1917) Reading notes on property rights an d institutions    __________________________________________________________________________________ 14  The various types of rights and duties are all tied to actions and transactions: what owners are allowed to do or not do, what non-owners are allowed to do or not do, and how the power of the legal system may help the owners to protect and exercise their rights. The expectations of the owners about the behaviour of the non-owners, appears to the non-owners as duties towards the owner. The privileges of the owner concern which behaviour the owner is allowed without having to consider the reactions of the non-owners. Correspondingly the non-owners have no rights (i.e. expectations about the behaviour of the owner) that can interfere with the behaviour of the owner. The powers of the owner are the abilities to voluntarily create new legal relations with a non-owner. The powers of the owner are curtailed in the law of contract and include, of course, everything from the short time renting of a consumer durable to outright sale of, or giving away, an entire estate. If an owner wants to exercises his power to create a new legal relation with a nonowner, the non-owners susceptibility to having his legal position altered is called liability (see also Munzer (1990, 18)). On the other hand, an owner has immunities against attempts from non-owners to create new legal relations or interfere with established relations. The non-owners have no powers to create new legal relations. To this must be added that the focus of the property relation in any case is some particular benefit from some particular source. The expected and allowed behaviours concern this "something". The same does the possible new legal relations. It is important to note that for a relation to be a property relation, it must be enforceable. The rights, privileges, powers and immunities of the owners are one way or another protected. Those violating them do so at a real risk of suffering sanctions. Reading notes on property rights an d institutions    __________________________________________________________________________________ 15  Extending Hohfeld’s paradigm of rights and duties Hohfeld’s (1913, 1917) conception of legal relations applied to the relation between owner and non-owner in relation to an object also contains the negation of this relation, the "jural opposite" (for example what does absence of a claim rights /duties relation mean?) as seen from the owner’s position: RELATION OWNER N ON-OWNER ITS NEGATION Use aspects claim-rights duties no-rights p rivilege no rights duties Exchange aspects p owers liabilities no-powers immunity no-powers liabilities Commons (1924) takes the discussion further. He clarifies the meaning of the categories outside the strictly legal context as well as the distinction between the directly interested parties (owner/ non-owner) and the «uninterested» third party (such as the «public interest») to which Hohfeld's «jural opposite» (negation) relation applies if interpreted in the meaning of a limit on the owner/ non-owner relation. The social science concept of property rights It is easily seen how the 6 rules described by Snare can fit into the more abstract scheme of Hohfeld. However, the legal concept of property seems to have lost touch with the everyday concept, which sees property as a "thing" even though it obviously implies this in its actual application. In its abstract focus on the relation between members of a society, the law has had to leave out the property seen as a “thing” in order to achieve its main task of bringing justice to the transactions among people. In the social sciences concerned with societal development this is no longer possible. Property seen as a “thing" has to be brought back in. But the "thing" brought back in is even more abstract than the relational concept of property. Economists might say that the abstract "thing" is the “goods” and “bads” of everyday life, the utilities of social actors. Sociologists might say it simply is concrete and effective rights and duties – or maybe more familiar: conventions, rules, norms and values - as these are actually distributed in a society. In general, social science seems to lack a precise technical language Reading notes on property rights an d institutions    __________________________________________________________________________________ 16  for the discussion of property rights and institutions. Buck (1998, 2-5) demonstrates how technical terms in law and political science can convey different meanings. However, social science is interested in the social power attached to property rights. The allocation of rights and duties in relation to particular resources determine whose goals will count by how much in the choice of management goals, in the timing and duration of extraction, in the application of technology, and in the intensity of effort expended to achieve the goals. But even more important: in any society those who have much property also will have much power in the sense that they will be able to affects the lives and destinies of other people – the non-owners. The crucial distinction between the legal conception of property and the social science conception is best seen by focusing on property seen as concrete existing, effective rights used in the everyday appropriation of reality. The legal conception is concerned only with those rights recognised by the law as property rights. Rights given the status of property rights by the law are treated differently from other rights. The procedures in court are different. The remedies granted the rights holders are different. The restraint shown by the state in interfering with these rights are often remarkable. In contrast to this the social science conception of property also includes rights not currently recognised as property rights by the law (except in the concept of common law), provided the rights actually exist and are used in the everyday appropriation of the world. This opens the possibility for studying changes in property rights: the emergence of new rights, how people exercise their new rights, and finally the recognition of their new rights by the legal system as property rights. For more on the nature of rights see Coleman (1990a). It is usually taken for granted in the study of property rights that property rights include all the claim-rights, privileges, powers and immunities recognised by (mature) legal systems (Honoré 1961). “Ownership” of something or “property rights” to something is considered a “bundle” of rights. However, the discussion of private property rights is usually focusing on the right of Reading notes on property rights an d institutions    __________________________________________________________________________________ 17  exclusion from the good and the possibility of alienating the right to its utility. The central feature is the owner’s power to alienate his property either in bequeathing or in trade. Without the right of alienation and exclusion, the rest of the bundle of rights seems to be theoretically uninteresting for the (private) property rights paradigm. However, a right, even if in itself inalienable or applying to a good only partly, may give rise to a valuable stream of benefits, some of which may be alienable. In between the alienable and inalienable there are all possible variations of the conditionally alienable. These not completely alienable rights can be as private as any completely alienable and excludable good. The problem is not alienation or not, but monitoring and enforcement of whatever rights there are, on the one hand, and the dynamic consequences for transaction costs and distributional equity, on the other. This means that to study how property rights work we need to “unbundle” the bundle of rights assumed by the simple conception of “thing ownership”. Property rights and stakeholders The discussion of property rights so far has shown that “ownership rights” has as its complement the “no-ownership” duties on the one hand, and, on the other hand, the role of the disinterested third part, the state. From this it is seen that in all situations effective property rights will be defined by three types of rules:  Statutory rights and duties of owners,  Customary rights and duties of non-owners,  Statutory modifications of customary and statutory rights and duties o by limiting the options of (land) owners (zoning regulations or land use planning), o by regulating the behaviour of both owners and non-owners, and o by regulating the use of technology. Property rights in this meaning do not only define owners (those with enforceable rights), but more generally “stakeholders” (anyone with a legitimate interest in a resource). Stakeholders are the owners and the nonowners with a legitimate interest in the resource. Stakeholders without statutory property rights represent a difficulty for many legal systems. They usually do not have legal standing in court proceedings. During the last decades there has been a growing emphasis on citizen Reading notes on property rights an d institutions    __________________________________________________________________________________ 18  participation in the management of the environment (Appelstrand 2001). This has led to new approaches giving standing to stakeholders based on their representation of a general public interest. This process can be viewed as a step towards giving public goods legal protection. In an empirical study of the rights and duties of stakeholders in some particular resource the separate contributions of several sources have to be considered:  customary behaviour towards the resource as defined by the local culture,  legislation defining the rights and duties of a holder of the particular resource,  public legislation on environmental protection and resource management, and  ideas of equity in dealing with competing interests in the resource. The relative strength of the various sources can be expected to vary from society to society, from community to community, and, perhaps, also for various types of goods. Rights of management Rights seldom come one by one. Usually they are defined generally and will be thought of as bundles in the sense that the general description of them will allow for some kind of specification into «elementary» rights. The rules of specification, however, may vary. This leads to different bundles of rights. The key is the specification rule. In a resource governance perspective the most important dimension of property rights is their role in the management of resources. The goals of the governor will then frame the specification. Based on the interests of the owner, the management problem may be specified according to:  decisions furthering productive and profitable activities,  consumer interests of the beneficiary of the resource, and  subsistence security of resource users. Reading notes on property rights an d institutions    __________________________________________________________________________________ 25  particular person. But with increasing crowding there will be an increasing number of externalities affecting other goods in the wood. At some point the cost of these externalities may be high enough to make the cost of exclusion reasonable. Assuming the crowding is real and not just theoretically possible, at what degree of crowding does this happen? Real evidence seems to be missing. All arguments end up with a political “choice” at some point in history. But for the present discussion there is one interesting aspect to the different choices in Norway and England. In Norway the right of access to woodland is conceived as separate from the land. In England it is bundled with the land. Externalities An activity generates an externality if there is an unwanted material consequence for actors not taking part in the activities generating the consequence. In common pool resources the externality is of the queuing type causing competition among appropriators and distribution problems between those first in the queue and those last, but without affecting the utility of the good appropriated. In club goods the externality is of the crowding (or thinning) type. This type of externality produces distribution problems in relation to non-members and causes threshold effects in the utility of the good. By setting the number of club members to something near the threshold, the utility of the good can be preserved. But equity problems between members and non-members have to be addressed. It should be kept in mind that these are analytical categories. Real world goods such as pasture, wildlife, timber, or biodiversity will usually be a mixture of the various types of analytical goods, and thus the property rights to the resource need to solve the particular mix of externality problems found in each case. We must also see that the problems of exclusion and subtractability as well as the characteristics of the externalities are shaped in profound ways by the technology used in the appropriation of the good. What actually happens in forest activities depends not only on the institutions but also on the available technology, including knowledge about how to transform resources into something more desirable. Reading notes on property rights an d institutions    __________________________________________________________________________________ 26  An interesting case where technology helped solve the crowding problem is the radio spectrum where allocation of frequencies for transmission of signals created enormous problems for communication. New technology combined with management solutions similar to modern commons management has basically resolved the problem (Berge and Kranakis 2011). Types of resources and types of owners It is interesting to note that the various types of resources thus identified have a certain correspondence to the types of owners discussed above. In particular it would seem that a pure club resource might be suitable for common ownership. A pure public resource would need no ownership, and a pure common pool resource would, perhaps, require state ownership. Transaction costs Most real resources will contain aspects of more than one of the types identified. The distinctions are, however, important for the design of property rights in that rules of transfer must depend on the possibility and cost of excluding some non-owner from the resource (the transaction costs and possibilities for generating externalities from enforcing a contract of transfer of rights). And it must take into consideration to what degree the resource (or more precisely the value of the resource) is divisible. If the value is indivisible it is most probably inalienable as well (like knowledge or skill once acquired). Conversely considerations of entitlements and equity may lead to considerations of inalienable rights. The rules defining and protecting such rights then has to conform to the rules governing club resources and public resources. Property Rights Regimes Four types of regimes are usually found and labelled individual private property, state property, common property and open access. Individual Private Property Rights This is the ordinary everyday concept of property applied to private citizens. There is a single decision maker known as the owner exercising all rights, privileges, powers and immunities of an owner. Reading notes on property rights an d institutions    __________________________________________________________________________________ 27  State Property Rights In discussing state property rights it is focused on their public character. They are by some seen as being held in trust for the people and should be managed by the wise and well-intentioned state bureaucrats for the greatest good of the greatest number of people. Others have focused on the inherent difficulties in designing rules to do this even in the best of circumstances. The many examples of states with corrupt servants making state property into something best described as open access or even their own private property, should warn against too much faith in the state in general (Ostrom 1993). Common Property Rights In the discussions of private and public property, the common property rights are by some seen as the ideal combination of private and state aspects of property, and by others as getting the worst combination of the two. It is well within the probable that all arguments about the virtues and shortcomings of common property may be true in some specific context and with some specific combination of rights and duties as defined by some specific political system. It is impossible that all arguments can be true in general (Ostrom 1990). Open Access Regimes For a resource with open access, nobody is vested with the rights, privileges, powers and immunities of an owner. This means that all benefits from the resource are open for appropriation by anyone willing and able to do so. The distinction between open access/ no ownership and common ownership is important. Eggertsson (1990, 36) uses the label "communal property" for what here is called common property and "common property" for what here is called open access (no property). Also Waldron (1988) uses "common property" to denote an open access resource. The logic of the utilisation of a "common property resource" (Warming (1911), Gordon (1954), Scott (1955), Hardin (1968)) in the sense used by Eggertsson and Waldron applies in reality to the resource with no ownership and no effective regulations, the open access resource. For a true common property resource the logic will apply only under particularly specified circumstances. Reading notes on property rights an d institutions    __________________________________________________________________________________ 28  Needless to say, the open access resource is a vanishing specie except for the atmosphere and the oceans outside territorial boundaries. The atmosphere is an open access resource. During the period 1950-1990 several efforts at creating a regime governing the use of the atmosphere resulted in nothing. The effort was mostly fuelled by a concern for its use by airplanes and later on the need for finding suitable spots for satellites. By the 1990s the concern with pollution affecting climate had emerged. But there was no system of governance. Buck (1998) in her discussion of global commons concludes that the atmosphere is not a commons, but a common pool resource, or an open access resource in the terms used here. Since Hardin (1968) such resources have been known to be susceptible to destruction. Users of such resources are confronted with a social dilemma and may easily slide into a social trap (Ostrom 2005). This is the situation today for gases furthering a warmer climate. Types of actors, types of goods and types of regimes The first approximation to the question of who the owners are, introduced the distinction between individuals, various types of collectives, and the state. This distinction was behind the classification of property rights regimes into private, common, and state property rights regimes. Above we discussed the various types of goods one might find in the “things” owned: private goods, common pool goods and public goods. Putting the concepts besides each other like below might suggest there is a one-to-one correspondence of type of actor, type of good and property rights regime. But that is misleading. McKean (2000) points out that a lot of conceptual confusion can be traced to the use of ”public” and ”private” to distinguish types of actors, types of goods, and types of property rights regimes. Table 1.6 Types of actors, types of goods, and types of regimes Type of Actor Type of Good Property Rights Regime Private (Individual) Private Private Public (Collective) Common Pool Common (public) State (Public) Public State (public) Source: McKean (2000) Reading notes on property rights an d institutions    __________________________________________________________________________________ 29  Perspectives on systems of property rights A property rights system can, short and imprecise, be defined as an institution determining: “Who will benefit how much for how long and in what ways from which resource(s)?” Answering the “who” question will identify who will legitimately be able to withdraw resource units and make decisions about resource management. That is: it determines who holds property rights over the resources. According to Godelier ([1984] 1986, 76) "the concept of property may be applied to any tangible or intangible reality", and rules of property rights will "always assume the form of normative rules, prescribing certain forms of conduct and proscribing others under pain of repression and sanctions". But he also warns "Property only really exists when it is rendered effective in and through a process of concrete appropriation." (p. 81). In order to understand and appreciate Godelier's warning here we must consult Searle (1995). Searle is not preoccupied with property but with how our beliefs about the world come about, including beliefs about property rights (see more in Meidinger (2008)). Property rights in the means of production are usually recognized as one of the major institutions of a society. In Marxian social science the relations of production (i.e. the distribution of property rights) is seen as one of the major institution of society defining among other things the class divisions of society (Elster 1985). However, property rights as such seem to have been taken as rather unproblematic. Giddens (1981, 113), for example, writes: "The concept of "property" was never analysed by Marx, and it would be necessary to discuss it at some length were one to attempt a satisfactory elucidation of the notion. For my purposes here it is enough to specify a minimal categorization of how "property" might be analysed. First of all, property has a content, property is something. The chief form of private property in the means of production in classdivided societies is land, even if the formation of money capital through commerce and agriculture may be a far from negligible phenomenon. In capitalism the main forms of private property are factories, offices, machinery, etc., however much land (itself capitalized) might remain a necessary productive resource. It is difficult to underestimate the sociological significance of this difference, and Marx provides us with a framework for analysing it - again, especially in sections of the Grundrisse3.  3 Marx (2008 [1858]) Reading notes on property rights an d institutions    __________________________________________________________________________________ 30  "Property", of course, also implies normative rights of control of material resources. Here we can usefully recognize variations in the level and types of alienability of resources." I think Giddens' critique of historical materialism might have profited from a more thorough understanding of the concept of property. Anthropological and historical research has demonstrated that property rights systems are not immutable structures. They change and transform in response to more pressures than the forces of production. Sometimes it may be appropriate to speak of a de facto development of property rights even though the particular rights as yet are unrecognised by the law as property rights. This might be the case for some developments in organized labour-capital relations, social security; compare e.g. Reich (1964), or the rights, privileges, powers and immunities of the members of the more successful professions; e.g. Perkin (1981). Property rights concerns the practices, rules and beliefs which determine who will get which benefits from which resources. Property rights "help man form those expectations which he can reasonably hold in his dealings with others" (Demsetz 1967, 347). This means that property rights are a central part of human interaction. Even in situations where the actual on-going interactions have nothing to do with the distribution of benefits, one can see that the prevailing property rights affect the framework of interaction at least by defining and infusing the space-time setting of the interaction with particular meanings. This view of property rights means that they are a central part of all social institutions and that institutional change means changes in property rights. Eisenstadt (1968, 410) defines social institutions as "regulative principles which organize most of the activities of individuals in a society into definitive organizational patterns from the point of view of some of the perennial, basic problems of any society or ordered social life". Bromley (1989a, 77-78), thinking of economic institutions, finds that they may be defined as the sum of "consensual arrangements or agreed upon patterns of behavior that comprise conventions", and the "rules and entitlements that define - with both clarity and obvious sanction - individual and group choice sets". Stinchcombe (1997) reminds us that for a rule system to become an institutions Reading notes on property rights an d institutions    __________________________________________________________________________________ 31  it needs guardians charged with the interest and authority to monitor and enforce the rule system. At the most elementary level the people who devise the rules may do so themselves. In modern states we in most cases expect to find a bureaucracy. Bromley arrives at the institutional structure of society as the fundamental variable to study in order to understand the dynamic of the economic system. The study of social institutions seems to be the meeting ground of sociologists and economists (Swedberg 1987). But compared to e.g. Schotter (1981) and Williamson (1975), Bromley has come much closer to the sociological concerns with distributions and social justice as fundamental aspects of social institutions. According to Lewis (1986, 58): "A regularity R in the behavior of a population P when they are agents in a recurrent situation S is a convention if and only if it is true that, and it is common knowledge in P that, in any instance of S among members of P: (1) everyone conforms to R; (2) everyone expects everyone else to conform to R; (3) everyone prefers to conform to R on condition that others do, since S is a coordination problem and uniform conformity to R is a coordination equilibrium in S." Theoretical studies of property rights The academic study of property rights has concentrated on resolving the relative merits of simple systems of private individual rights compared to systems of common property. The works, particularly those by Coase (1937, 1960), Alchian (1965), Demsetz (1967), Alchian and Demsetz (1973), Williamson (1975, 1981), Posner (1972), North and Thomas (1973, 1977), and North (1990) have been associated with the emergence of a property rights perspective on institutional development (Bromley (1989a, 12), Bardhan (1989, 3-17), Eggertsson (1990, 33)). It should be added that also Bromley, Bardhan, and Eggertsson (strongly influenced by North) are contributors to this tradition. While Bromley (1989a) and Eggertsson (1990) mainly present their own approach to institutional economics, Bardhan (1989) distinguishes three approaches to the role of institutions in economic development: 1) the Marxian approach, 2) the CDAWN approach (named after Coase, Demsetz, Alechian, Williamson, Reading notes on property rights an d institutions    __________________________________________________________________________________ 32  and North) focusing on the role of transaction costs, and 3) the imperfect information approach referring to Ackerlof and Stiglitz: see e.g. Ackerlof (1970) and Stiglitz (1985). One important result was to see the distinction between the open access resource and the resource managed as common property (Ciriacy-Wantrup and Bishop 1975). While open access resources are without any management regime and tend to become destroyed as predicted by Garret Hardin’s (1968) metaphor of “The tragedy of the commons”, resources owned in common or as private individual property are indistinguishable in the theoretically simple situation of (1) perfect information, and (2) no transaction costs (Baland and Platteau 1996). However, it is recognised that in the real world available information is far from perfect and transaction costs are considerable. Particularly information about the status of resources tends to be skewed towards the short term and directly observable. Slow and not so easily observed changes often come as surprises. This is as much a problem for local community management as it is for private individual and even state management. In addition, the larger the ecosystem to be managed is, the more complex is the information available. And if it is available at all, the cost of implementing it in a management system is considerable. The problems encountered in the management of the forest lands can be said to have its origin in co-ordination problems constrained on the one hand by ecosystem dynamics and on the other hand by considerations of equity among owners. Due to the multiplicity of activities and the diversity of actors, their activities need co-ordination. Collective action refers to activities that require the co-ordination of efforts by two or more individuals (Olson (1965), Hardin (1982)). Collective action becomes problematic for a group of people when their actions are interdependent: when one person’s reward is dependent on the actions of others (Axelrod 1984, 1997). Independent choice in an interdependent situation is called a social dilemma. Social dilemmas are situations where what seems to be the best course of action from one actor's point of view will, if pursued by all actors, lead to results considered worse than feasible alternatives. The exact character of a social dilemma is thus shaped by value systems, Reading notes on property rights an d institutions    __________________________________________________________________________________ 33  technology and resource characteristics (North 1990, Ch2). Collective action problems appear at two levels: First in recognising the necessity of coordination and regulation of behaviour. Second, the problem appears in making the rules of regulation, and of monitoring and sanctioning behaviour governed by the rules. Designing a system of property rights to some particular resource (e.g. fish) has been studied as a problem in collective action, particularly in connection with the management of open access resources (Taylor (1987), Ostrom (1990), Sandler (1992), Ostrom, Gardner, and Walker (1994)). The development of game theory has been a decisive tool in these studies (Gintis 2000, Camerer 2003). The general problem consists in supplying public goods in “optimal” quantities. Rules and their systems of monitoring are called institutions. Institutions are public goods. Public goods, club goods and common pool goods are in simple models of collective action prone to under-supply due to incentives of free-riding. The problem of supplying such goods at socially optimal levels has been extensively studied with formal models, experimental studies, and field studies. There is a discrepancy between theoretical predictions of standard models and observations from field studies. The levels of cooperation are higher than expected even though less than optimal. Experimental studies confirm this and suggest that the formal models could be improved by including concepts such as “trust”, “reputation”, and “reciprocity” (Gintis et al. (2005), Fehr and Gächter (2000), Berg, Dickhaut, and McCabe (1995)). A group with a higher level of trust, stronger norms about reciprocity, and members with better reputations for being trustworthy will more easily overcome social dilemmas and take collective action. In economics there is an implicit focus on exclusion and alienation in the emphasis on efficiency in the allocation of productive resources. Tietenberg (2000) describes the structure of property rights necessary to produce efficient allocations in a well-functioning market economy. Well defined property rights have the following characteristics:  exclusivity – all benefits and costs accrue to the owner,  transferability – all property rights should be transferable through Reading notes on property rights an d institutions    __________________________________________________________________________________ 34  a voluntary exchange, and  enforceability – property rights should be secure from seizure or encroachments by non-owners. The importance of the allocation of property rights has not always been acknowledged. Coase (1960) argues that in a neo-classical economy (with zero transaction costs) «free» trade in assets will always lead to an optimal resource utilisation. Hence, allocation of property rights does not matter for efficient outcomes, while any restriction on trade will be detrimental to it. Stigler (1989) labelled this result the «Coase Theorem», and many economists seem to stop reading at that point. However, Coase recognised the limitations of the “theorem”. The assumptions require that all actors are rational and possess complete information about all other actor’s preferences and strategies, and that transaction costs and wealth effects are zero. Recognising this, the conclusion by Coase (1991) and neo-institutional economists (North (1990), Eggertsson (1990)) is that politics, institutions and distribution of rights do matter. The impact of restrictions on alienation is far from obvious, not even for the efficiency of the economy. Social science outside economics has used a more empirical approach. Studies of so-called "primitive" societies show elaborate social structures regulating decision making and utilisation of common property resources (Berkes 1989). The development of legal systems of complex societies also show that the first problems they set out to regulate among owners of common property are decision making on utilisation and exchange of rights to the resources. The law gives the owners the necessary rights and powers to set up a "government" at the same time as it protects the individual owner against misuse of the power vested in such governments. The actual problems of governance of common property, and the need for the legal backing, will depend on the number of co-owners. Where the number of owners is small, it seldom is a problem (Ellickson 1991). But in many countries, all or a large part of the land is in principle a "commons" or in state ownership. The larger the number of "owners" the more the utilisation process will resemble the utilisation problems of the open access resource or the higher the policing costs will be. For once a government is installed; its costs have to be covered. The problems of taxation appear. Reading notes on property rights an d institutions    __________________________________________________________________________________ 41  recognized by the law as property rights. Rights given the status of property rights by the law are treated differently from other rights. The procedures in court are different. The remedies granted the rights holder is different. The restraint shown by the state in interfering with these rights are often remarkable. In contrast to this the social science conception of property also includes rights not currently recognized as property rights by the law, provided the rights actually exist and are used in the everyday appropriation of the world. This opens the possibility for studying changes in property rights: the emergence of new rights, how people exercise their new rights, and finally the recognition of their new rights by the legal system as property rights. This conception of property rights also may begin to justify the title chosen for this essay: "a property rights perspective on institutional change in the welfare state". One of the remarkable things of the welfare state is the speed with which new rights have emerged and the quantity of them. At the outset the rights granted by the welfare state have not been seen as property rights, but many of them have become so, de facto. The problems of this situation have been debated at least since Reich (1964) called attention to "The New Property": the grants of government largesse which the welfare of many people had come to depend on. The same debate has been going on in Norway at least since the 1920s, fuelled by legislation concerning regulation of business activities and prices (Øvrelid 1984). However, the theoretical connection between the problems debated and the property rights theory were not recognized. It is interesting to note that the most intense debates were provoked by single cases where the rights and remedies of individual citizens were in opposition to the rights and needs of the society as interpreted by the government Øvrelid (1984, 110), just as emphasized by Godelier ([1984] 1986, 81). The present essay is not an attempt to solve any of these problems. Instead it is an inquiry into the conceptual foundations of the various problems involved. It is a kind of preliminary study necessary before an empirical investigation can be undertaken. The investigation can be said to be based on three rather simpleminded questions:  is there any regularity in the kinds of objects (i.e. rights or goods) that can be made into property?  is there any regularity in the types of subjects which may hold property (types of owners)?  is there any regularity in the rules delineating owners from non-owners? Reading notes on property rights an d institutions    __________________________________________________________________________________ 42  The answer to the last question is already mentioned above in the comments on the relational conception of property proposed by Hohfeld. The answer to the first problem seems to be no. Historical and cross-cultural studies seems to show that while there within a society may be clear and coherent rules of what can be made into property, for the general case there are absolutely no consistent classification of what can be recognized as property and what cannot. The most one is able to say is that if something is abundant; people will usually not bother to make it into property. Confining our attention then to the welfare state, some interesting aspects of welfare goods are discussed under the labels "private goods, positional goods, club goods, and public goods". The second question leads us to the answer that three different types of entities will usually be recognized as owners: a state may hold property, properly defined and legally recognized groups (most often villages, tribes or families, but in modern economies also companies, foundations and similar legal entities) may hold property, and individuals may do it. Corresponding to these types of owners one speak of state property, common property and private or individual property since the rules delineating owners from non-owners often differ for the various types of owners. The difficult part, however, is to combine the partial insights from different studies to achieve a coherent picture of how definition and distribution of rights interact with established structures to produce a changing institutional system. Two essays tries to approach this problem, one on the regulation of professional organizations considering a profession as a property rights system, and one on the management of resources without owners (often called common property resources). Reading notes on property rights an d institutions    __________________________________________________________________________________ 43  NOTE 3 Erling Berge: On the nature of welfare goods6 Welfare goods What is meant by "welfare good" is seldom spelled out precisely. It should, however, not be confused with collective goods (Mishan and Mishan 1981) or public goods (Samuelson 1954). Mishan prefers collective goods as the designation of what usually are called public goods. Since Samuelson's definition of a public good as a good where person A's consumption of the good did not interfere with person B's consumption, the public good concept has evolved, but the label, despite Mishan's effort, has stuck. Welfare goods are provided by a public agency to consumers (the public) free or at a cost below production cost. Huttman (1989, 1) defines "Welfare commodities" as "encompassing goods and services extended to consumers free of charge or at varying user fees and charges scaled below costs...". This definition presumes that the welfare good is a particular product somehow desired by the consumer and will thus exclude goods like pensions or aid in the form of cash. One may, however, think in terms of a generalized welfare good like "minimum standard of living" and look at the aid in cash as a public subsidy toward this good. The below cost requirement implies that the consumption of the welfare good will not have the same distribution as the distribution of income, which determines the distribution of consumption of goods supplied at full cost. The aim of providing a welfare good is usually to achieve a redistribution of goods, measured for instance against what the distribution would have been with full cost provision, to increase the total welfare of the society. There are several traditions where the study of the distribution of welfare goods is important. During the early 70ies quite some effort went into the establishment of social indicators and a system of social accounting. This established a tradition of publishing social surveys. Another tradition is focused on the level of living surveys conducted regularly in several countries.  6 This is a slightly modified version of a paper published in 1991 in Sosiologisk Årbok 7:55-73 (Berge 1991a). Reading notes on property rights an d institutions    __________________________________________________________________________________ 44  Comprehensive studies focusing particularly on welfare goods are more uncommon. The most relevant studies are usually focused on a single welfare good (e.g. Whitehead et al. (1988) on health care services, Lundqvist (1986) on housing, Bloch (1974) on police services). Le Grand (1982) provides an assessment of studies of the distribution of public expenditure on health care, education, housing and transport. He notes "Unfortunately, there is no statistical evidence concerning the distributional impact of the personal social services" (p.18) or directed at the evaluation of the overall objective of more equality in the distribution of welfare (e.g. Korpi (1978), Ringen (1987)). Even by economists the question of who gets which benefits with respect to welfare goods has not been addressed in the same way as the consumption of ordinary goods. At least this is the impression conveyed by Deaton and Muellbauer (1980) in their survey of consumer behaviour. For the present study we shall look at welfare goods as anything provided to the consumers (the citizens of a state) at a price below production price with the intention of achieving a more equitable distribution of welfare among the citizens of the state. A typology of goods The distinction between public and private goods (Cornes and Sandler 1986) defines categories of goods according to whether the consumers are excludable (person x can be excluded from the benefits) or non-excludable (person x cannot be excluded from the benefits) and whether there is rivalry or non-rivalry in the consumption of the good. That means benefits are divisible or indivisible. Baumol and Oates (1988) call this distinction depletable or undepletable. But they are not quite consistent in their terminology. "An undepletable externality is thus one for which consumption by one individual does not reduce the consumption of anyone else." (note 15, p.19). The preference here for divisibility vs. indivisibility has its background in property rights theory and the possibility of assigning property rights to a good. Reading notes on property rights an d institutions    __________________________________________________________________________________ 45  Table 3.1 Types of goods available for the welfare state Consumers are - excludable - non-excludable Benefits are - divisible private positional - indivisible club public Source: Table 1.5 above 1. Private goods Private goods are excludable and have rivalry in consumption. These are the ordinary consumer goods which one can buy in a market. 2. Public goods Public goods are non-excludable and have non-rivalry in consumption. A typical example of a public good may be the protection given by NATO's fleet of Trident submarines with nuclear weapons. Some would perhaps rather call the nuclear weapons a public bad, but the logic of the argument is symmetrical to good or bad. The nature of the pure public good is such that if the good is produced at all, it will be available to all whether they pay for it or not. If NATO is able to protect one country, all countries will be protected. This is so because there is no way of, either theoretically or practically, excluding any person or province from the protection. The realization that this was the case for an important class of goods, and the concomitant free rider problem in collective action (Olson 1965), led to important theoretical developments for public policy (Cornes and Sandler 1986). This definition of public goods means that there are just three ways a public good can appear. A public good (or bad) may  appear by itself as natural phenomena (e.g. a beautiful sunset or a violent storm), or it may  appear as a by-product (unintended consequence or externality) from other social processes (e.g. solidarity or anomie), or it may  appear because everyone (or at least enough people) contributes voluntarily or by force (taxation) to its production. Sociologists have Reading notes on property rights an d institutions    __________________________________________________________________________________ 46  concentrated more on the problem of how public goods come to be provided than how they are consumed. (For developments in the theory of collective action see e.g. Hardin (1982) or Marwell, Oliver, and Prahl (1988)). This definition of pure public goods also implies that they are not welfare goods as defined above. They are delivered to the citizen at their full price, collected by the general tax. Only if there is inequality in the consumption of a pure public good and only if this inequality is not a result of free choice by the consumer, can the good be called "a welfare good" (perhaps straining the term a bit) since then the consumer not being able to consume according to his or her preferences will have, through taxes, contributed a subsidy of the good consumed by all those being able to consume according to will. 3. Club goods Those goods which are neither pure public goods nor pure private goods are called impure public goods. An interesting type of public good found both among pure and impure, is the merit good. The basic characteristic of a merit good is that it reflects the preferences of an elite or ruling group and is imposed on (or prohibited from) individual consumers Judge (1979, 375). Goods which are excludable and at least partly non-rival in consumption have been called club goods by Cornes and Sandler (1986). It was called toll good by Ostrom and Ostrom (1977). Partly non-rival means that the initial situation is one of non-rivalry. It can be called a club good because of the nature of the exclusion mechanism. The exclusion mechanism is like a boundary. You can partake the club good once you are within the boundary. Once you are inside the boundary the good has the character of a pure public good. As long as the number of members in the club is below "the carrying capacity" of the club, the club good is available to all. The expression "carrying capacity" is deliberate and alludes to the ecological concept and its relation to crowding and the tragedy of the common. But as the number of members increase crowding will lead either to deteriorating quality of the good or competition for access to the good. A decreasing number of members may lead to analogue problems of thinning: there will be too few to share the cost of keeping up the quality of the services and eventually competition to exit before the market in memberships collapses completely Reading notes on property rights an d institutions    __________________________________________________________________________________ 47  (e.g. selling the house before the price goes down too far). The road system illustrates the problem of crowding. The road system today is a club where title to a car (and sometimes willingness to pay the road-toll) is the membership card (and explains Ostroms' choice of "toll good" as their term for the concept). As the number of members who use the club increases, crowding leads to slowdown in traffic (deteriorating quality of the product) and dangerous driving (competition). It is worth emphasizing the necessity for members to enter and use the club. Unlike pure public goods, club goods have a voluntary element in so far as it requires an intentional act of the consumer to appropriate the good. 4. Positional goods Goods with rivalry in benefits, and where the consumer is at least partly nonexcludable, are not, like club goods, explicitly labelled by Cornes and Sandler (1986). One might perhaps call them "impure private goods". Taylor (1987, 6), discussing the definition of public goods, observes: "divisibility does not entail excludability, although important examples of non-excludable, divisible goods are not easy to come by: economists have suggested such examples as a garden of flowers, whose nectar can be appropriated by individual bees but particular bees cannot be excluded from consumption." The pure case of a non-excludable and divisible good may not be found to exist in itself, but then few important goods do. Actual social contexts may impose the characteristic of non-excludability on any kind of divisible good. My choice of label, positional goods, is inspired by Hirsch ([1976] 1978). Hirsch have no precise definition of a positional good. He says "The positional economy, relates to all aspects of goods, services, work, positions, and other social relationships that are either (1) scarce in some absolute or socially imposed sense or (2) subject to congestion or crowding through more extensive use." (p. 27). He finds for example that "traffic congestion can be seen as only a special case of the wider phenomenon of social congestion, which in turn is a major facet of social scarcity." (pp.3). His conception of a positional good obviously contains both club and positional goods as defined above. The position taken here is that there is a major and consequential distinction between the scarcities of club goods and the scarcities of positional goods. Since the one type of good where the (dis)utility of spatial crowding is the main rationing method, has been called club goods, it seems convenient to put the label "positional good " on Reading notes on property rights an d institutions    __________________________________________________________________________________ 48  the other where the (dis)utility of waiting time in a queue is the main rationing method. These distinctions will be elaborated below. Partial nonexcludability means that the situation usually is considered to be one of excludability, but may under certain circumstances approach one of nonexcludability. Non-excludability may, however, be more pervasive also for what standard economic theory would call private goods than one commonly is led to believe. At the outset then, the positional good, in a technical sense, is a pure private good. But during its consumption something happens to make it something else. Granovetter and Soong (1986) investigate consumer interactions in the consumption of private goods and identify a "forward bandwagon effect" if someone buys a product because others already have it, and a "revers bandwagon effect" if someone stops buying because too many people have bought it. These are precisely the processes Hirsch ([1976] 1978) associated with the positional economy. In their extreme form we find the processes represented in the potlatch ceremony of some primitive peoples as well as the phenomena in modern society Veblen ([1899] 1976) describes as "conspicuous waste" and "conspicuous consumption". The consequences of consumer interactions are such that even those who do not intend to consume, or even have not considered consumption of the products, share some of the benefits (or losses). The consumer interactions create the positional economy and make the good non-excludable: no one can escape being classified as either having the good or as not having the good. What happens seems to be some kind of symbolic transformation of the good. The pure private good is transformed to a symbol and imbued with a meaning shared by all relevant actors. Bourdieu ([1979] 1984) explores precisely this process of consumption in his study of how the cultural production of art meets, through the "acquisition" of objects of art, the cultural production of taste to produce a system of power relations where the distinctions of taste are used to elaborate and preserve class differences: "Taste classifies, and it classifies the classifier. Social subjects classified by their classifications, distinguish themselves by the distinctions they make." (p.6). The precise qualities of an object of art become manifest only through its consumption. The context of consumption is reflected both in Reading notes on property rights an d institutions    __________________________________________________________________________________ 49  the positioning of the consumer and in the positioning of the non-consumers. A simpler example of the same process is the choice of locality for housing in a city. The relative attractiveness of various locations is translated into prices which then clears the queues for the various locations. Those willing and able to pay the most get the most attractive locations. Those with the least ability to pay get the least attractive locations. A housing lot has a position in the overall positional economy. No one can opt out of this. Similarly the latest fashion in for example clothing (or cars, or ideas, or ...) divides the total population into those adopting early and those adopting late - or never. If carrying capacity is the key concept of clubs, queues or waiting times are the key to positional goods (and bads). A visible queue is also a signal to other potential consumers that here is something of value. Some people will join a queue just because of that. Others will start leaving the queue it they see it is getting too long. In the market, however, queues are not visible, they are translated into prices. An unexpected high price is also a signal that some think this is an item of unexpected good value. Some people will buy because of the high price. Others will decide not to buy because of the high price. The forward bandwagon effect would correspond to a positive utility from paying a high price (or being first in the queue), while the revers bandwagon effect would correspond to a negative utility from paying a low price (or coming late in the queue). To some people it is more important to be "avant-garde" than to be economically efficient. To other people it is more important to avoid appearing cheap. The nature of welfare goods is politically determined. One conclusion from the discussion above is that pure public goods cannot be welfare goods as we conceive of welfare goods. The discussion of private vs. public goods in economics has focused on the nature of the public good. In most cases the nature of the public good seems to have been taken for granted: either it was technologically determined (it would be too expensive to exclude consumers) or inherent in the product itself (a beautiful sunset cannot be divided and people cannot be excluded in any systematic way). But economics has not systematically distinguished between pure public goods, club goods and positional goods. Thus they have tended to see welfare goods as some kind of impure public good. Reading notes on property rights an d institutions    __________________________________________________________________________________ 50  The approach here is different. Welfare goods may - at the outset - be of any type except the pure public good. Usually there is nothing inherent in the welfare product itself which determines whether it is a private, a club or a positional good. In most cases the question of what type a welfare good shall belong to, is socially and politically defined. It will rarely be a question of technology or inherent qualities. It may even be transformed into a pure public good and thus leave the group of welfare goods. If primary school by law is provided to everyone, and everyone can be forced to attend, and the schools can accommodate all pupils free of charge, then the school system is just as purely public as the military protection given by a nuclear strike force. Places for everyone secure non-rivalry in consumption and the law making schooling compulsory secures non-excludability. Or so it is supposed to be. The aim of the welfare state was to provide a series of basic services in the form of pure public goods. However, the increasing problems, within all welfare states, of providing both enough of the promised goods and of achieving an equitable distribution of that which is provided, suggests that there may be some unrecognized problems inherent in the whole undertaking. Nichols, Smolensky, and Tideman (1971) find that providing several queues differing only in the combinations of waiting time / user fees required by the consumers, may lead to substantial efficiency gains. But they also observe: "Our proposal may produce serious equity problems that cannot be overcome." "If equity means the same treatment for all persons, it may not be possible to improve social welfare by increasing the number of money-time pairings. If, however, unequal treatment of unequals is equitable, which seems much more reasonable, then there are unexploited possibilities for improving social welfare." (p. 322). Since a welfare good may be of any type as discussed above, it would seem reasonable to suppose that the problems might originate in unrecognized differences in the consumption processes and their feedbacks to the various types of products. To get a handle on this we need to elaborate on possible consequences of the consumption process. Reading notes on property rights an d institutions    __________________________________________________________________________________ 57  The consumer generated externalities of club welfare goods are experienced in real time and depend not only on the number of consumers but also on how close this number is to the carrying capacity of the club. Once the effect of crowding sets in, the total social cost will increase exponentially with the number of consumers Baumol and Oates (1988, 90). It would seem that the effort to found a new urban sociology on the concept of collective consumption might find some justification in the existence of consumer generated unintended consequences associated with the consumption of the various club goods and bads found in "a relatively large, dense and permanent settlement of socially heterogeneous individuals.", as Wirth (1938, 8) defined the city. The "club" character of urban areas and the "club" character of many of the goods which make urban areas attractive to people, should be taken to qualify the assertion of Saunders (1986, 288) that "It is time, in short, to develop a non-spatial urban sociology which, while recognizing the empirical significance of spatial arrangements, does not seek to elevate these arrangements to the status of a distinct theoretical object." (see also Otnes (1986)). On the problem of scale Social systems work differently in small communities and in large cities. There is a scale measured in number of people. Likewise governing a large territory is different from governing a much smaller territory. There is a scale in number of square kilometres. One needs to be sensitive to the scale of units one studies (Gibson, Ostrom, and Ahn 1998). The problem of scale becomes more interesting when we combine size (area and population) with various management systems and the technology employed in delivering welfare goods and services. Let us consider establishing and running a hospital. It will supply services to a district where population size and travel time for each customer is a foundation. From experience one knows how many illnesses of various kinds, and how many may be hurt in accidents of various kinds. Despite variation in these numbers, the number of beds needed and the number of staff can be estimated. The problem of scale appears as one realizes that some ills and some damages require specialized knowledge from the staff. And not only specialized knowledge: for some types of damages the staff needs members with Reading notes on property rights an d institutions    __________________________________________________________________________________ 58  specialized skills that require regular practice. How large a population will be needed to supply a heart surgeon with one patient a week? Supply of primary education is easier. But also here one encounters difficult choices. During the last decades the number of children per family has declined. As the number of children per teacher declines the cost stays the same. Funding the school becomes a problem. During the same time the requirement of the teaching has changed requiring better educated teachers. This usually means more teachers. Outside urban areas declining supply of pupils and increasing demand of the teachers has led to closure of small schools and long transport for pupils. At the core of this development lies the evolution of knowledge. Hundred years ago a district with one doctor (plus a nurse and a midwife) and one teacher (plus an assistant or two) would provide health and education for the local population. Today a team or doctors (plus many nurses), and a staff of teachers will be needed to do the same in the same district. Similar processes are taking place in the core of the municipal administration, basically driven by national legislation. The result is an increasing and well educated staff. The number of problems transcending the single municipality seems to be growing. One solution is the amalgamation of municipalities to create sufficiently large administrative units. This encounters problems of community identity. Another solution is to create special districts dedicated to solving one problem. This encounters problems of democratic accountability. At different scales one encounters different problems. Reading notes on property rights an d institutions    __________________________________________________________________________________ 59  NOTE 4 Erling Berge: Privatization and the nature of welfare goods Introduction For some time studies on "the crisis of the welfare state" has been a growth industry. An early contributor was O'Connor (1973), see also OECD (1981), and Mishra (1984). The strategies involved in the various attempts of restructuring the welfare state has also been extensively studied (Ringen 1987). One strategy has been called privatization. Whether this is a strategy for restructuring or for dismantling the welfare state, is one of the issues discussed. It seems likely it may be used either way. The aim here is to see if it can be used constructively in reshaping the welfare state. Before we can say anything about this, it will be necessary to investigate the different forms of privatization as well as the nature of the various welfare goods provided by the welfare state. To do this a general typology of goods will be used to classify welfare goods as either public, private, club or positional goods, and the character of different unintended consequences (external effects) arising from the consumption of the different kinds of goods to make two points:  that the type of any welfare good is politically determined rather than technically, and  that if one wants to change the supply of a pure public good to something more like a private good, there are two roads of privatization: by way of club good or by way of positional good. While the external effects are determined by product specific characteristics and consumer preferences, the consumption process of the good is organized by political decisions. If a decision maker want to choose a road of privatization, the basic phenomenon he ought to take into consideration, would be the kind of unintended consequences that arise from the consumption of the Reading notes on property rights an d institutions    __________________________________________________________________________________ 60  good. If the choice of how to go about the privatization does not consider the possible unintended consequences of the process it organizes, the negative effects may be aggravated or the positive effects inhibited. Before we discuss this any further we have to present a background for the welfare state and a bit more on what privatization means. The welfare state A large number of studies have focused on the welfare state. By "the state" or "the government" it will in this essay be meant a system responsible actor (Berge 1986), both at the local level and at the state level, established by an electorate representing and acting in lieu of "the people". It has only been possible to consult a few which seem more relevant than others (Le Grand (1982), Le Grand and Robinson (1976), Le Grand and Robinson (1984), Klein and O'Higgins (1985), Ringen (1987)). The welfare state is defined in relation to other states by the range of welfare goods it delivers and the criteria of eligibility. A state is a welfare state if it actively tailors the welfare goods it delivers and intervenes in the distribution of other goods (cash transfers and consumer protection legislation) in order to increase the equality and welfare among its citizens. The rapid growth of the number and quality of the welfare goods as well as the active interventions in the distribution of other goods has since the late sixties run into increasing problems primarily in terms of finding tax revenues to pay for it, but also in terms of a more vocal opposition towards the various regulations laying down restrictions on the behaviour of citizens. Many of the attacks on the welfare state are either directed towards the cost side: the public doesn't get their money's worth, or the supply side: the state is an inefficient producer of the desired goods. Often the two are connected and the conclusion, usually, is privatization. Both the arguments phrased in terms of a desire for efficient production and those concerned about the benefit of the consumer leave out the distributional dimension. Yet, it is the distribution of welfare goods, the citizen cum consumer most easily react to. The "unworthy" recipients of social security, the "unjust" meting out of rights, the inexplicable denial of help; each incident Reading notes on property rights an d institutions    __________________________________________________________________________________ 61  contributes to form an image of the welfare state shared by the public. If the same distributional consequences follow from a private sector process, they are not discussed in the same terms of equity and justice. It seems that from the welfare state rather few questionable decisions are needed to weigh up for all the right ones. It seems that a suspicion easily arises among many "taxpayers" that the "wrong" groups benefit more than they should. "The basic problem is that the political system cannot itself guarantee to produce the values required to assure loyalty to its policies." Taylor-Gooby (1985, 9). One reaction toward this problem is privatization. Privatization Privatization, however, is not a well-defined concept. King (1989, 51) for example notes that "Opinion polls throughout 1989 consistently showed that most voters wanted more money spent on public services, not less; they also showed, in a remarkable reversal, that, faced with the privatization of basic industries like water and electricity, voters now want more state ownership of industry rather than any more privatization." The statement would imply that privatization simply is the opposite of nationalization: privatization means less state ownership of industry. While this interpretation is both valid and important, taken as the everyday ideological use of the concept, it can only be used as backdrop to a more in depth discussion of the actual processes and strategies involved in the restructuring and reforming of the modern welfare state. This is by no means the only possible point of departure for a discussion of the concept. Sennett (1977)'s study of "The fall of public man" might suggest it had something to do with urban culture and life-styles, and some of the papers in Gamarnikow et al. (1983) might suggest that it had something to do with gender politics. It may be that in the larger picture there are connections between the privatization-process in the welfare state and the cultural and political issues these authors discuss, but this possibility has to be investigated elsewhere. One important distinction is between privatization seen as a cultural development with implications for the legitimation of the welfare state as it has Reading notes on property rights an d institutions    __________________________________________________________________________________ 62  been implemented by particular states (Taylor-Gooby 1985) and privatization seen as the opposite of nationalization with implications for state activity in the way of provision, subsidization or regulation Le Grand and Robinson (1984, 3). Often, however, the attention is focused rather narrowly on the state provision of goods. One then discusses privatization in terms of property rights in the means of production, the organization of production and the system of financing the goods (e.g. Kristensen (1984), Judge and Knapp (1985)). Even so, the issue is far from simple. Whatever the focus of a discussion, public debates of privatization usually develops on several levels: politically, where privatized stands as a pole against socialized; economically, where market processes are seen as providing goods more efficiently than bureaucracies; and culturally, where privatized for some will be associated with the caring image and non-profit work of charitable organizations in comparison with the "non-caring" image of state bureaucracies, while it for others will be associated with the greedy takings of unscrupulous businessmen. Too often the rhetoric of the debate is simplified making it into an ideological debate harking back to earlier times and the left - right struggle over the status of private property. While property rights - in terms of rights to control income generating assets - certainly is a central issue in the struggle to draw the line more or less narrowly around the activities of the state, a more careful study of the various situations where the concept of privatization has been introduced, reveals that the reality is rather complex (Kielland 1986). Lorentzen (1987) identifies six varieties of privatization: 1. Privatization of responsibility (ideological/cultural shift in the view of what legitimately is a public concern), 2. Privatization of costs (moving in the direction of full consumer payment for a previously free or subsidized good), 3. Market privatization (undersupply of publicly provided goods opens opportunities for private supply of the same), 4. Contracting out (putting out to tender specific services or products wanted for public consumption), Reading notes on property rights an d institutions    __________________________________________________________________________________ 63  5. Privatization of administration (transfer of administrative tasks from public to non-governmental organizations or private persons), 6. Privatization of services (private supply of new types of services similar to some of those supplied by the government). If one confines the interest to the provision of goods, one can distinguish 3 tasks which have to be considered: 1) who pays for the product, 2) who organizes the production process, and 3) who owns the means of production. The classification is here taken from Kristensen (1984) who refers it back to Savas (1982). For each of these one may simplify to one of two possible ways of locating the responsibility for performing the task: government or private. This gives 8 different combinations of responsibility, six of which are a mix of both government and private. Only two processes are "pure", one all private (the "market" solution), the other all government (public provision). It is fairly easy to find examples of all six mixed types. Kielland (1986) in figure 3 provides the following examples: Table 4.1 Examples of "mixed economies" in the provision of welfare goods WHO PAYS FOR PRODUCTS WHO ORGANIZES PRODUCTION WHO OWNES MEANS OF PRODUCTION EXAMPLE OF MIXED GOVERNMENT/PRIVATE ACTIVITY GOVERNMENT GOVERNMENT PRIVATE A public road built by a private construction company GOVERNMENT PRIVATE GOVERNMENT Physicians in private practice with patients in public hospitals GOVERNMENT PRIVATE PRIVATE Norwegian private schools PRIVATE GOVERNMENT GOVERNMENT A research officer payed by a private company working in a university department PRIVATE GOVERNMENT PRIVATE A public toll road built by a private construction company PRIVATE PRIVATE GOVERNMENT Physicians in private practice with patients in public hospitals payed by private health insurance Reading notes on property rights an d institutions    __________________________________________________________________________________ 64  The question of why mixed processes for providing welfare goods proliferates rather than the more single-minded organization of activities in an all private or all government process, is one intriguing question which ought to be investigated more in dept. One reasonable explanation might be that this way one can utilize more consciously the desirable properties of market competition without sacrificing the overall objectives of equity and redistribution in the provision of welfare goods. For the rest of the discussion we shall confine our interest to this most limited interpretation of the privatization issue: that agents other than the government organize, finance and/or produce services where this formerly was done by the government, or, alternatively, where some people think it ought to be done by it. In other words, privatization will loosely be taken to mean the opposite of nationalization. The consumer needs While the consumer is a central character in economics, it is a rather new preoccupation in sociology (Saunders (1986), Otnes (1988)). This picture is changing rapidly. The consumer perspective is emerging as a major approach in the study of the welfare society (Le Grand and Robinson (1976), Foster (1983), Page (1983), Herigstad (1986), Torp (1988)) Even if the consumer is a central character in economic theory, it is not an unproblematic one. Galbraith (1973, 29) notes: "In the neoclassical system consumption is a generally flawless thing to be maximized by any honest and socially benign means. It is also a curiously trouble-free enjoyment. Thought must be given to the selection of goods and services. No problem arises in their use. None of this is true, and what is omitted from view deeply shapes the patterns of individual, family and social life." What he notes as the general case is of course doubly true for welfare goods. One who has tried to dig into this question is Tibor Scitovsky in his study of "The Joyless Economy. An inquiry into human satisfaction and consumer dissatisfaction." For welfare goods such as the road system and the hospitals, Scitovsky (1976, 108-112)'s distinction between products which relieve pain and products which give pleasure is useful. The demand for products which relieve pain, such as hospital services, is easily satiable. Reading notes on property rights an d institutions    __________________________________________________________________________________ 65  "To start out with the simplest case, it a is well-established fact that consumers' demand for almost all narrowly defined biological necessities is satiable, in the sense of having a low income elasticity of demand and, presumably, an upper limit. From this one can always infer that the biological needs to which these necessities cater are also satiable. The desire to escape physical pain stops; and the pain stops when the biologically determined need is satisfied. Very similar to the comforts that relieve physical pain are those that relieve fatigue, eliminate bother, or save time." (Scitovsky 1976, 112). The road system is supposed to satisfy the desire to get from point A to point B. The better the roads, the shorter the time used travelling will be. Roads are made mainly to save time on the trip from A to B. As seen from a basic consumer's viewpoint, roads and hospitals are very similar in that they are not consumed to give joy to the consumer, but to satisfy a compelling need. On that account at least they are different from schools. Children do not usually see schools as a source of pleasure, neither are they designed to relieve pain. One may perhaps view schooling as an acquisition with the potential of giving pleasure. If one distinguishes between welfare goods relieving pain and welfare goods giving pleasure, it would seem reasonable to expect consumers to react in different ways to interference with their consumption of them. The definition of luxuries and necessities in standard consumer economics (Deaton and Muellbauer 1980, 17-19) seems to resemble the distinction between goods giving pleasure and goods giving comfort. Luxuries are goods that take an increasing share of the budget as the income increases. Necessities are goods that take a decreasing share of the budget as the income increases. Inferior goods are goods that are consumed in decreasing quantities absolutely as incomes increase. Scitovsky (1976), however, finds that the distinction between luxuries and necessities, though formally defined straightforward by the income elasticities of demand, in reality are social constructs where one period's luxury becomes the next period's necessity. He finds it more interesting to concentrate on the consumer satisfaction. Reading notes on property rights an d institutions    __________________________________________________________________________________ 66  Production, consumption, and exchange The theoretical importance of the distinction between production and consumption has been extensively discussed. Saunders (1986) concludes that it is both important and necessary to study consumption in itself and not only as an integrated part of production. The distinction between club goods and positional goods is also interesting because it coincides with one particular classification of the relation between production and consumption. This classification is based on the observation that sometimes production may be separated from consumption and sometimes not. The production of commodities is obviously separated from their consumption. Military protection, on the other hand, has to be consumed as it is produced. The classification is further based on differentiating between acquisition and appropriation as different aspects of consumption. Also for these two processes we can see that they sometimes are inseparable and sometimes not. The distinction between the club good and the public good depends on the existence of an exclusion mechanism. If defence is taken as an example of a pure public good there is no way of separating production, acquisition and appropriation. For the club good, on the other hand, the consumer has to make an active effort to appropriate the good. If the club exists and the consumer is a member, the good can, from the viewpoint of the consumer, be said to be both produced and acquired. Once you have a car, or a telephone, or a television set, you are a member of the club and have free access to the good. No one can exclude you. But still you have to do something actively to appropriate the good. You have to sit in the car and drive, or you have to turn on the telly and watch the program or you have to dial the number of another telephone owner and talk. The same distinction applies to the difference between private goods and positional goods. It is easy to see that the acquisition of groceries is not the same as appropriating them, and that it is impossible to acquire a personal service, like an operation in a hospital without appropriating it. Reading notes on property rights an d institutions    __________________________________________________________________________________ 73  The initial Norwegian response to congestion problems has been to build more roads and make the car more expensive. But funds have not been sufficient to build enough roads. New facilities like tunnels and bridges are now routinely (part-)financed by fees payable by all passing the toll-booths controlling the entrance to the new facility. Around Bergen and Oslo a "ringwall" of toll-booths has been erected partly to finance extensions of the highway system, but also partly to finance better mass transit systems. This will, in addition to supply funds for extending the road system, also ameliorate congestion by increasing the private cost of contributing to it. For the Oslo "ring-wall" the proposal was to charge for each trip by means of an electronic accounting system. This would make access to the streets of Oslo a private welfare good for those living outside Oslo as long as the incomes of the fees were below the "real cost" of the road system. The protests have been very strong. The opposition seems to be patterned according to how much each actually uses the road system. At first one will introduced a flat rate per month, half-year or year making access to Oslo a club good (a club within the club). The intention is still to go to the per trip charge (though with big quantity deductions on the per trip price). 3. Primary schools Unlike hospitals and roads schools are not consumed to satisfy an immediate compelling need. It is consumed in order to enjoy a future benefit, or so most parents would argue in front of their children. As long as schooling can be maintained as a pure public welfare good, all is well. However, because the benefits one can enjoy in the future, depends on the quality (or rather the socially perceived quality) of the education one gets today, parents are concerned about the quality of the education their children receive. This concern is expressed either as a lament over the uniformly declining quality of schools, or as informal gossip on which municipality provides the better schools or which school is better within the municipality. If differences in fact develop among municipalities and these become large enough, people start voting with their feet, eroding the tax base the municipality uses to finance the schools (a thinning effect) leading to a further decline in Reading notes on property rights an d institutions    __________________________________________________________________________________ 74  the quality of the schools in the municipality loosing inhabitants which in turn will lead to crowding effects and/or increased taxes in the municipality gaining pupils. This process is very similar to the one above called adverse selection. If the quality of an education is seen as depending only on the municipality (no rivalry of benefits once you are a citizen) education can be viewed as a club good with the municipality boundary as the boundary of the club. The social costs of congestion (crowding/thinning) work in this case through the tax system to affect everybody in the municipalities (clubs) in the same way as additional motorists affects the cost of travelling. However, schools are more than the funds allocated to them. They depend on the quality of teachers as well as pupils. There may thus develop differentials between schools. The schools will then resemble hospitals in the way the product is provided. In this case education becomes a positional good. The social costs associated with excess demand for education from the better schools will appear as schemes for early entry into (or leapfrogging) queues of pupils waiting to enter. For primary education there are strict limits to the time parents are willing to let a child wait. But registering a child at birth and letting it wait until normal school start is not a very costly queue. Such queues might be useful to educators if they can use them as arguments for expanding their facilities. However, in the "positional economy" (Hirsch [1976] 1978) education (with spatial location) plays a crucial role. Because the coveted positions education can qualify for are scarce, the bargaining strength one's own education has, also depends on how many others have the same or more education. Hence parents are not only concerned about the quality of their children's education in an absolute sense. Even more they care about the relative ranking attributed a particular education. Education from particular schools is a membership card to a club where entry into particular job-positions is the club good. If too many enter the club there will be congestion effects. Hence educators cannot expand their facilities without destroying the product they deliver. From these considerations it follows that if differentials in perceived quality of education are attributed to schools or municipalities it may prove difficult to keep education a pure welfare good. It also follows that privatization and competition among schools will not lead to an overall improved quality of Reading notes on property rights an d institutions    __________________________________________________________________________________ 75  education - at least if educators are to deliver what their consumers want. If, on the other hand, the quality of schools is perceived as uniform and the status allocation of education attributed to individual differences in ability to absorb and utilize education (thus receiving larger amounts of education), there should be no particular difficulty in keeping the education a pure public welfare good. If funds do not allow one to keep it public, access may be determined by waiting time and/or individual competition, thus making it into a positional good The nature of education as a welfare good is thus mixed. The dual nature of education reminds one of the dual natures of social structure: the dialectic between the bond and the boundary in establishing both the shared antagonism in the boundary between us and them and the shared valuations representing the bond between haves and have nots. The wish to keep it a welfare good is possible to reconcile only if one is able to keep the quality of the education uniform throughout the country. This perceived quality is of course based on the efficacy of the education in gaining access to some coveted type of job opening. If some alternative judged better than the rest should appear, pressure will start mounting for the expansion of the better school with less resources coming to the ordinary schools. With the mounting demand for other welfare goods like health services or roads, the investment in primary schools seems to have lagged for a long time. Now the variation in quality among schools is becoming apparent. Parents are in increasing numbers taking their children to private schools like the "Steiner"-school despite the extra charge they have to pay. This both erodes the interest for and the ability to do something about ordinary schools. What future do schools have as a welfare good? Private schools in Norway are to a large extent (85%) funded by the state. Even if privatized education will be a welfare good, it is no longer the "pure welfare good" which an "all-state" provision can be called. The privatization of the school system is towards one of the mixed types identified above (public funding, private organization and private ownership of the means of production). The per pupil fees are more to be considered membership fees. It would seem that the present growth of private schools is taking us in the Reading notes on property rights an d institutions    __________________________________________________________________________________ 76  direction of providing education through a club system. The further development from a club system would then depend on which differences, if any, develops among the clubs. If none seems a better bargain than others from the point of view of the positional economy, the result may very well be increased consumer satisfaction from the ability to choose. For the primary schools this may not be too difficult to achieve. Reading notes on property rights an d institutions    __________________________________________________________________________________ 77  NOTE 5 Erling Berge On the regulation of professions7 Introduction Professional associations have been an integrated part of the development of the welfare state as well a problem for its management (Broady (1985), Freidson (1987), Ramsøy and Kjølsrød (1985)). At present there seems to be no widely accepted theory of how to regulate the activities of such actors, particularly not in relation to the delivery systems for welfare services. Johnson (1972) presents an interesting perspective. His main thesis is that professionalism is one type of occupational control which takes its form from the type of producer-consumer relations dominating among the members of the occupation. He identifies three types of producerconsumer relations: 1) the producer defines the needs of the consumer and the way to cater for them, 2) the consumer defines his own needs and the manner in which they are to be met, and 3) a third party mediates in the relationship by defining central parts of the needs and the manner in which it is to be met. The institutional forms of professionalization corresponding to these types of producer-consumer relations may be called collegiate professionalism, Patronage professionalism, and Mediated professionalism. A profession have been defined as a system where some particular, and publicly or professionally validated, education is necessary for entry into an occupation. The performance of the professional in the occupational position is regulated to ensure that the education is put to socially responsible uses (Parsons 1968). It has been suggested that a profession may be defined in relation to the degree of monopolization of utilization of certain resources (knowledge and practices) appropriate to certain social needs (see e.g. Jackson (1970, 7)). It has also been described as occupations with nontransferable skills which are considered to be "the property of a specific community" (Johnson 1972, 57). Perkin (1981) takes a step further by considering the rise of professionalism  7 This was first presented at Conference of Sociology, Geiranger, May 1990 (Berge 1991b). Reading notes on property rights an d institutions    __________________________________________________________________________________ 78  in the English society since 1880 as a kind of transformation of the concept of property. He thinks "we need to take a more operational view of the professions than is customary in either their history or their sociology, which usually takes them at their face value and lists the beneficial traits which define them and the useful functions which they perform for society in terms of expertise, theoretical knowledge, intellectual training, the testing of competence, exclusive practice, a code of conduct, altruistic service in the affairs of others, and so on" (p.7). The beneficial traits of the professions include "the resources which the profession bring to the market of society, together with some of the devices, such as "strategies of closure" by restriction of entry, certification, exclusion of charlatans, etc., by which they exploit those resources" (pp.7-8). However, Perkin's concept of property seems to be at odds with what here is meant by a property rights system. To think that the rise of professions imply a transformation of the concept of property is to misunderstand the concept completely. If Perkin instead had said "broaden the concept ...", or "development of a new type of property", he would have been more to the point. Instead he seems to think that the professionals may have "both the material self-interest and the moral conviction to be the harbingers of the new functional society and the vivisectionists of capitalism" (p.23), as if the emergence of professional knowledge as property would be impossible within capitalism or could not exist alongside other types of property. But to see a profession as a particular kind of property rights system is not the same as thinking other kinds of property rights less real or of less importance. In the present paper a property rights perspective will be applied to professions and professional associations to investigate if this may be a possible basis for identifying dilemmas of regulation which have to be faced. In particular the medical profession will be discussed. Property rights in professional knowledge If Hohfeld (1917)'s classification of property relations is applied to the medical profession and the relations between those being members of the profession and those not being members, we see that the customary description of the relationship (Gerhardt (1989), Levine and Kozloff (1978)) contains all the elements of the definition of a property relation. Reading notes on property rights an d institutions    __________________________________________________________________________________ 79  Table 5.1 The property rights aspects of the relations in the doctor-patient role Owners are in this table the "doctors"; the non-owners are all other persons. The nonowners desiring something of what the doctors "own" are the patients. OWNERS NON_OWNERS Use aspects RIGHTS all doctors can diagnose and prescribe treatment for patients DUTIES all non-healthy persons shall go to a doctor PRIVILEGE a doctor can decide that a nonhealthy person is healthy or that he needs the services of a second doctor NO RIGHTS to expect any particular diagnosis Exchange aspects POWERS doctors can sell their services for a fee or give them away freely LIABILITY enter sick role*, take treatment and pay cost (if any) IMMUNITIES their "powers" are protected by law against all non-owners trying to exercise them NO POWERS Liable to prosecution for attempts to exercise the powers of an owner (quackery) * One might perhaps say that what the non-owner buys from the doctor is a particular custom-built sick-role. To say that it is custom-built does not only mean that the doctor utilizes the symptoms of illness to be found, but also that there may be cultural factors affecting the role. Problems in the property rights of the medical profession The institutional implantation of the property rights of the medical profession contains some severe problems. One problem is the relationship between the medical profession and other occupational groups involved in the production of the end product. A second problem lies in the internal dynamics of a profession in relation to the needs of its customers. A third problem is the cost explosion following the divorce of needs from payment and the increasing capital requirement of treatment. The end product of the medical profession, the delivery of which is the basis for their incomes, is a joint product with several occupational groups which have to be paid from the same incomes basis. In so far as there is a Reading notes on property rights an d institutions    __________________________________________________________________________________ 80  roof on the total expenditure on the health system, the remuneration going to the various occupational groups is a zero-sum game. The norms of distributional justice which supported the work to establish public health insurance are also applicable to the distribution of wages among the health occupations. At present the medical profession seems to have problems justifying the existing inequalities. If they are not able to meet the challenge for fair distribution from their co-workers in the health system, their authority, and the trust on which so much of their achievements are built, may suffer, and their ability to persuade the political forces to accommodate their interests may diminish. The public interest in this fight over remuneration is, however, more than just a worry over the bill. Such disputes within a system always absorb energies which then is lost to the patients. The union struggles of the health occupations entails costs (external diseconomies) for the public in terms of less health care for the money spent. Also the second problem area mentioned the internal dynamic of a profession, leads to such conclusions. Weale (1985, 156) observes: "any professional ethos is bound to encourage the development of certain attitudes and practices which run contrary to the needs of consumers. Let me pick out three features of a professional ethos that can lead to this result: professionals will prefer the interesting to the mundane; they will prefer the prestigious to the ordinary; and they will prefer the fashionable to the unfashionable." Actually, which patients are the "mundane, ordinary and unfashionable" is at least partly a result of the cultural and social processes distributing status both among doctors and among patients. An example might be the fate of patients with psychological problems before and after Freud. The tendencies to avoid the mundane, ordinary and unfashionable together with the unavoidable specialization of the medical services, as it has expanded, will inevitably lead to a distortion in the supply of products as measured against demand. The mundane, ordinary and unfashionable patients will receive less attention and ultimately less service than the interesting, prestigious, and fashionable. One way in which this problem has been handled is to concede the right to Reading notes on property rights an d institutions    __________________________________________________________________________________ 81  treat some of the most mundane, ordinary and unfashionable patients to other occupational groups. In so far as there is a roof on the expenditures for health services, not only will the various occupational groups have opposing interests, but also the various specialties of the medical profession. The fights among specialties for increasing the resources devoted to one's own specialty, will, as for fights among the occupational groups, take time and attention away from the patients, and ultimately mean less health services for money spent. The primacy of the interesting, prestigious and fashionable also has consequences for costs seen from another perspective. Today the interesting, prestigious and fashionable is tied up with research and development of new medical technology as well as a strong demand for this technology from the practitioners. The divorce of needs from payment at the consumer level and the divorce of demand for equipment from the utilization and corporate efficiency of it, leads to a badly distorted investment program, less resources for the less "sophisticated" patients, a confused picture of treatment possibilities, and, ultimately, less health services for money spent. The comparative lack of professional interest in the mundane, ordinary and unfashionable also have sparked reactions against the medical profession in the form of various health rights movements demanding better care for special groups like the mentally and physically retarded. The cost escalation of a professionally managed consumption rather than consumer managed consumption in a world of competing claims (from various types of medicine as well as various types of consumer interests) has about run its course. The ability of the state to pay is about exhausted. How will this affect the dialectic between doctor and patient? and how will it affect the health establishment? The critical factor to watch is the trust in the medical profession. If people start to lose their trust in the services of the profession, the political commitment to pay will diminish. The spiral downward will have started. This diminishing of the power of the medical profession may be necessary before any kind of regulation curtailing their privileges and powers are possible. But if not the regulating agency is alert, it may easily get out of hand doing irreparable damage to the fine instrument for welfare a properly Reading notes on property rights an d institutions    __________________________________________________________________________________ 82  regulated medical profession is. Professions and professionalization After reviewing the literature on professions Starr (1982) found that "A profession ... is an occupation that regulates itself through systematic, required training and collegial discipline; that has a base in technical, specialized knowledge; and that has a service rather than profit orientation, enshrined in its code of ethics." (Starr 1982, 15). It seems to be a common presumption in American literature that a profession regulates itself. While this is true of the U.S.A., it is not a universal state of affairs, as also recognized by Parsons (1968). Most European states regulate professions by public intervention through law or grants of charters to the professional association. This difference may be important when it comes to the question of regulating the activities of professions. This seems a fair summary of current definitions of professions (Parsons (1968), Huntington (1957), Jackson (1970), Torgersen (1972), Merton, Rosenblatt, and Gieryn (1982), Abrahamsson (1985), Abbott (1988), Knutsen (1989)). Freidson (1986, 36) finds "that there is no way of resolving the problem of defining profession that is not arbitrary". But he also notes that some perspectives on professions "are more consequential than others if only because they stem from positions of substantial political and economic power". These perspectives are "authoritative in the pragmatic sense of setting the legal, political, and economic limits within which everyday professional work can go on reasonably securely and of guiding the provision of the political and economic resources without which the circumstances and opportunities for work cannot exist" (p. 36, my emphasis). In the property rights perspective property is seen as concrete existing, effective rights used in the everyday appropriation of reality. Freidson's approach would thus seem appropriate for the present purposes. But to begin to assess a profession as a system of property rights we need to look closer at a profession and the process of professionalization in terms of Reading notes on property rights an d institutions    __________________________________________________________________________________ 89  and grant them the rights, privileges, powers and immunities necessary for dealing with the grave danger represented by the epidemic diseases. Once granted these rights, the medical men set about capitalizing it, i.e. transforming them into property rights. They closed the profession by requiring certification and outlawing anyone else wanting to give advice on health matters. Otherwise, of course, they could not guaranty the quality of their service. Since any particular customer, as well as whole communities, was unable to check on the quality of the services, no one could deny this as a sensible measure. The major tool for this was the medical schools. Certification and control of education and research at the medical schools followed. The profession also started regulating the number of entrants to the medical schools to guard against oversupply of medical men. If the quality of the service were to be upheld, there should not be more doctors around than actually needed. The education was expensive and if there were too few patients the moral hazard of prescribing unnecessary treatments would be great for the doctor with too few patients to earn a decent living. The scarcity rent which the control of numbers paved the way for, was a happy unintended consequence - for the medical profession at least. The competitive admittance requirements and the good income possibilities assured a steady flow of talented youth into the profession, again a happy unintended consequence for the profession. The certification of the medical expertise and the closure of the profession may be explained by the problems (diseconomies for the population) which one might imagine followed from not doing it. But the further steps of gaining complete control of the market in the form of separating ability to pay for services from services rendered and gaining control of the transformation of knowledge to final product cannot be understood in terms of external diseconomies alone. 2. Distributional justice and social power In order to contain epidemics and assure everyone a minimum of health, the society should insure its citizens so that the doctor would get his pay whether the patient were able to pay or not. Without a cultural commitment to Reading notes on property rights an d institutions    __________________________________________________________________________________ 90  distributional justice this would have been difficult to achieve. In all countries the trend has been in the direction of separating needs for services from ability to pay for services. But this separation of service and payment has generated some problems as yet unresolved. The moral hazard of doctors to prescribe unnecessary or too expensive treatment - which once was a reason for professionalization - has reappeared since payment is assured in any case, and the incentive for the public to take care of themselves and not run to the doctor for any kind of trifling problem is at least not economic. The struggle of securing control of the transformation of knowledge to final product has been fought on several fronts and is still being waged. The first important fight was to gain control of the drug industry. This was achieved by regulation giving the medical profession the right to approve and prescribe drugs. A major reason for this was again the problems following from charlatans and deceptions in the drug industry. The potential consequences of unregulated drug-marketing were seen as too damaging for a trusting population. The next and still unresolved fight was to keep control of all the "ancillary" occupations which have risen in the health system. So far the medical profession has been able to stay on top by the thrust of being first and utilizing their authority. This struggle is intimately linked to the rise of the hospital as the major arena of the health system and the administrative bureaucracy this requires. Membership in the medical profession does not qualify in any particular way for bureaucratic administration; still the members of the profession have been able to persuade the public that only they can do such a job. At least that holds for Norway. The situation in the U.S.A. is different (Starr 1982). To keep the control of the hospitals is important because of the increasing importance of technology in expanding the needs for medical services, and it is important because of the role of hospitals in the research and development of this technology. Reading notes on property rights an d institutions    __________________________________________________________________________________ 91  Conclusion It seems that the current implementation of the property rights of the medical profession generates an increasing number of external diseconomies, as well as increasing transaction costs in the form of bargaining between and administration of various factions of the health professions. Questions about the distributional justice of the professional practice both vis a vis the other occupation and vis a vis the various types of illnesses in the population can be raised. When external diseconomies arise or injustices are done, because of the way property rights are defined, it is the duty of a state to intervene and regulate the property rights in such a way that the external dis-economies are reduced and justice is seen to be done. In such an attempt the following points would be relevant: One must recognize the fragmentation of the knowledge and skill base of the medical profession as well as the importance of the new occupational groups and their knowledge and skill base, and ask the question of how one can judge the relative merits of the contribution from any particular occupation to the overall product. It may be a bit hard to envisage that the powerful medical profession will see the enlightened self-interest in sharing the various benefits flowing from their property. In this they need help of the state and its power to regulate. But, given the power of the medical profession, one can equally doubt the ability of a democratic state to go far in diminishing the privileges and immunities of the doctors. The best bet to do something in this line may be to get a professional bureaucracy for running the hospitals and make the doctors employees. In addition one has to define more clearly the boundaries of the intellectual and practical property of the various occupations. In other words: make all health occupations more like professions, but also emphasize the need for a stat to regulate as well as guaranty the rights, privileges, powers and immunities of the various owners. The cost problem of modern health systems can be traced to the divorce of payment from services rendered. However, the considerations leading to this divorce are still valid. The positive externalities from a prompt handling of illness are large and the value of equality in health care and opportunity for a healthy life so strong that it is unlikely a return to the old system of Reading notes on property rights an d institutions    __________________________________________________________________________________ 92  payment will come easily. The question of finding an alternative way of controlling the balance between benefit of services and pay for services must be investigated. This work has been going on for some time in attempts to design "performance measurements" (National Consumer Council, Chartered Institute of Public Finance and Accountancy, and Public Finance Foundation 1987). Reading notes on property rights an d institutions    __________________________________________________________________________________ 93  NOTE 6 Erling Berge On the assessment of property rights systems Introduction A property rights system can, short and imprecise, be defined as an institution determining who shall get which benefits from which resources. According to Godelier ([1984] 1986) "the concept of property may be applied to any tangible or intangible reality", and rules of property rights will "always assume the form of normative rules, prescribing certain forms of conduct and proscribing others under pain of repression and sanctions" ( p. 76). But he also warns that "Property only really exists when it is rendered effective in and through a process of concrete appropriation." (p. 81). Property rights in the means of production are usually recognized as one of the major institutions of a society. In Marxian social science the relations of production (i.e. the distribution of property rights) is seen as one of the major institution of society defining among other things the class divisions of society (Elster 1985). However, property rights as such seem to have been taken as rather unproblematic. Above on page 29 we have included a quote from Giddens (1981, 113) where he takes note of Marx's missing analysis of property. On this point Giddens' critique of historical materialism might have profited from a more thorough understanding of the concept of property. Anthropological and historical research has demonstrated that property rights systems are not immutable structures. They change and transform in response to more pressures than the forces of production. Sometimes it may be appropriate to speak of a de facto development of property rights even though the particular rights as yet are unrecognized by the law as property rights. This might be the case for some developments in organized labourcapital relations, social security (compare e.g. Reich (1964)), or the rights, privileges, powers and immunities of the members of the more successful professions (see e.g. Perkin (1981)). The aim of the perspective on property rights to be present here is to assess the utility of any particular property rights system in a comprehensive societal perspective. It is based on the property rights paradigm as developed Reading notes on property rights an d institutions    __________________________________________________________________________________ 94  in economics. This is then extended by considerations based on distributional justice and power. It seems to the present writer likely that a property rights perspective on institutional change in the welfare state may furnish valuable guidelines for the choice of regulations and reform of institutions. Before we go on to present these perspectives on property rights, a few comments on the question of what a property right is, seems in order. A property right is a relation A right, as seen from the point of view of the right-holder, is an expectation about the behaviour of other actors affected by the exercise of the right. Coleman (1990b, 45-64)'s discussion of rights to act is very instructive for understanding a right. A property right, then, is an expectation about the behaviour of all nonowners. It is different from other rights (non-property rights) in that the expectation is legitimate and relates to the appropriation of reality. It is accepted as legitimate by the non-owners as well as the owners. A right recognized as a property right have in developed democratic societies been given special status, protecting the holder of the right both from non-holders and from the state. If a legal system recognizes a right as a property right, special procedures are used and the holder of the right is given special remedies to help enforcing the right against contenders. The process of how a right comes to be regarded as a property right is not well understood, but it would seem to be connected to a process of legitimation of authority in relation to the development of a conception of justice. In other words it is tied to the development of legitimate and just use of power. The nature of property rights as these are recognized in legal systems have been spelled out in detail by Hohfeld (1913, 1917). A property right does not in itself so much concern the "something" giving benefit as it concerns the "who". A property right can be said to define a relation between an owner and all non-owners in regard of "something". Relations among people are dual in nature since they can be experienced from two perspectives. By the nature of the problem, to regulate the streams Reading notes on property rights an d institutions    __________________________________________________________________________________ 95  of benefits from human activities, a property relation has to be an asymmetrical relation. This was noted by Hohfeld who found that the property rights recognized by law had a dual asymmetrical nature. He classified the various legally recognized property relations to fall into four pairs: Table 6.1 Aspects of a property relation IF OWNERS HAVE NON-OWNERS HAVE Use aspects 1. claim-rights duties 2. p rivileges no rights Exchange aspects 3. p owers liabilities 4. immunities no powers Source: Hohfeld (1913, 1917) The expectations of the owners about the behaviour of the non-owners, appears to the non-owners as duties towards the owner. The privileges of the owner concern which behaviour the owner is allowed without having to consider the reactions of the non-owners. Correspondingly the non-owners have no rights (i.e. expectations about the behaviour of the owner) which can interfere with the behaviour of the owner. The powers of the owner are the abilities to voluntarily create new legal relations with a non-owner. These powers are curtailed in the law of contract and include of course everything from the short time renting of a consumer durable to outright sale of or giving away an entire estate. If an owner wants to exercises his power to create a new legal relation with a non-owner, the non-owners susceptibility to having his legal position altered is called liability (Munzer 1990, 18). On the other hand, an owner has immunities against attempts from non-owners to create new legal relations or interfere with established relations. The non-owners have no powers to create new legal relations. To this must be added that the focus of the property relation in any case is some particular benefit from some source. The expected and allowed Reading notes on property rights an d institutions    __________________________________________________________________________________ 96  behaviours concern this "something". The same does the possible new legal relations. It is important to note that for a relation to be a property relation, it must be enforceable. The rights, privileges, powers and immunities of the owners are one way or another protected. Those violating them do so at a real risk of suffering sanctions. Types of owners For a particular stream of "benefits" from a "something", four types of ownership have been identified (adapted from Bromley (1989a, 205)): 1. Private or individual ownership One particular individual is vested with the rights, privileges, powers and immunities pertaining to the possible "benefits" from a "something". These rights, privileges, powers and immunities of the owner have corresponding duties, no rights, liabilities and no powers for all others with regard to the "benefits" of this "something". 2. State ownership One particular agency empowered to act on behalf of the state is vested with the same rights, privileges, powers and immunities as if it were a private owner. But being a "system responsible actor" a state will have to justify its property by particular rules applied in addition to the ordinary rules to justify and legitimize its property. One particular important modification involves rules of access: who can be excluded from enjoying at least some benefit from the state property. In concepts introduced earlier one might compare state property to impure private goods or positional goods. 3. Common ownership One particular group of individuals are co-owners. The rights, privileges, powers and immunities pertaining to the benefits from that which is owned in common belong to the group collectively. Those not member of the group is excluded from the benefit, those who are members of the group cannot be excluded. Again one may compare this to the concept of an impure public good or a club good. Reading notes on property rights an d institutions    __________________________________________________________________________________ 97  4. No ownership Nobody is vested with the rights, privileges, powers and immunities of an owner. This means that any benefits of the "something" is open for appropriation for anyone willing and able to do so. The distinction between no ownership and common ownership is important. The logic of the utilization of a "common property resource" (Gordon 1954) applies in reality to the resource with no ownership, the open access resource. For a true common property resource the logic will apply only under particularly specified circumstances. Needless to say, the open access resource is vanishing specie. Eggertsson (1990, 36) uses the label "communal property" for what here is called common property and "common property" for what here is called no property. It should be added that also Bromley (1989a), Bardhan (1989), and Eggertsson (1990) are contributors to this tradition. While Bromley and Eggertsson mainly present their own approach to institutional economics, Bardhan distinguishes three approaches to the role of institutions in economic development: 1) the Marxian approach, 2) the CDAWN approach (after Coase, Demsetz, Alechian, Williamson and North) focusing on the role of transaction costs, and 3) the imperfect information approach, referring to Ackerlof (1970) and Stiglitz (1985). Economic theory of property rights in institutional change The works of particularly Coase (1937, 1960), Demsetz (1967), Alchian (1965), Alchian and Demsetz (1973), Williamson (1975, 1981), Posner (1972), and North (North and Thomas 1973, 1977) have been associated with the emergence of a property rights perspective on institutional development (Bromley (1989a, 12)), Bardhan (1989, 3-17), Eggertsson (1990, 33)). Property rights concerns the practices, rules and beliefs which determine who will get which benefits from which resources. Property rights "help man form those expectations which he can reasonably hold in his dealings with others" (Demsetz 1967, 347). This means that property rights are a central part of human interaction. Even in situations where the actual on-going interactions have nothing to do with the distribution of benefits, one can see that the prevailing property rights affect the framework of interaction at least by defining and infusing the space-time setting of the interaction with particular meanings. Reading notes on property rights an d institutions    __________________________________________________________________________________ 98  This view of property rights means that they are a central part of all social institutions and that institutional change means changes in property rights. Eisenstadt (1968) defines social institutions as "regulative principles which organize most of the activities of individuals in a society into definitive organizational patterns from the point of view of some of the perennial, basic problems of any society or ordered social life" (p.410). Bromley, thinking of economic institutions, finds that they may be defined as the sum of "consensual arrangements or agreed upon patterns of behavior that comprise conventions", and the "rules and entitlements that define - with both clarity and obvious sanction - individual and group choice sets." (Bromley 1989a, 77-78). Bromley arrives at the institutional structure of society as the fundamental variable to study in order to understand the dynamic of the economic system. The study of social institutions seems to be the meeting ground of sociologists and economists (Swedberg 1987). But compared to e.g. Schotter (1981) and Williamson (1975), Bromley has come much closer to the sociological concerns with distributions and social justice as fundamental aspects of social institutions. According to Lewis (1986, 58): "A regularity R in the behavior of a population P when they are agents in a recurrent situation S is a convention if and only if it is true that, and it is common knowledge in P that, in any instance of S among members of P: (1) everyone conforms to R; (2) everyone expects everyone else to conform to R; (3) everyone prefers to conform to R on condition that others do, since S is a coordination problem and uniform conformity to R is a coordination equilibrium in S." In economics evaluations of institutional change has focused on property rights by two approaches: 1) The transaction cost perspective on property rights points out that property rights are not costless to define, agree upon, enact, and enforce, and 2) The externalities perspective on property rights points out that social change, e.g. technological change or changes in availability of resources, will initiate activities entailing changes in property rights. Reading notes on property rights an d institutions    __________________________________________________________________________________ 105  between rules of utilization and degree of sustainability. The second is the precise role the state ought to have in regard of the rules defining the resource utilization as well as how it ought to perform this role. The role of the state in development is far from clear. A growing scepticism to the current practices has been voiced e.g. by the executive director of the United Nations Centre for Human Settlements at The international meeting on "Cities, the mainspring of development in developing countries.": "Clearly changes in policy direction are called for, and some of them may involve radical departures from existing practice. Such a change in direction must have as its point of departure that the solution does not lie in the direction of greater public spending or more direct government involvement. Rather government should concentrate on supportive and facilitating actions." 9 Despite the differences of the liberal and Marxist interpretation of the role of the state in development (compare for example Nozick (1974) to Miliband (1969)), they both agree on its decisive importance. The state seems to have a both omnipresent and self-evident position in development. It is supposed to allocate economic resources, marshal military protection, supply manpower training, and foster national pride to achieve the concerted effort needed to improve the life of its citizens. However, the proper conceptualization of the state will not be an issue here, neither will development theory as such be discussed. Even so, one conclusion of the present paper seems to be that the state will do well to consider how the various societal processes work: that the means of development may be just as important, sometimes more important, as the goal. This is, however, intended in a more specific and precise manner than the common presumption of democracy, western style, as the best road to development. Apter (1987), in a critique of traditional development theory, argues that development, in the end, must entail democracy. But he also shows how problematic democracy can be in the process of development.  9 To the best of my knowledge there should here be the following reference: "Ramachandran, Arcot. 1989. "Address by the executive director of the United Nations Centre for Human Settlements (Habitat) to the international meeting on "Cities, the mainspring of development in developing nations?", Cities, the mainspring of development in developing nations, 1989. In 1990 I clearly had access to the address by Arcot Ramachandran. But at this moment, in November 2023, I am unable to find it anywhere on the web. Reading notes on property rights an d institutions    __________________________________________________________________________________ 106  In particular this paper will argue that one important means of development is regulation and control of the various processes of the society aimed at decreasing transaction costs, maximizing external economies, and minimizing external diseconomies. Consciously shaping the societal processes according to such principles is a task only a state can do. It might also be possible to interpret historical development as an "unconscious" shaping of the states according to these principles. The shaping is then the result of competitive processes of systems of states (like the European in the time since the Roman Empire). In this system of states, the competitive edge will go to those states which more or less accidentally change in directions suggested here. Thus a system of states can, through small unplanned innovations in one or a few states and adaptions and imitations of the more successful ones among the rest of the states, move rapidly (relative to monolithic empires) towards prosperity and freedom for the many rather than the few. It seems to be a reasonable guess that a state pursuing such goals as at decreasing transaction costs, maximizing external economies, and minimizing external diseconomies will increase the societal surplus so that not only are both citizen and state be better off with such regulations and controls than without them, but the citizen will also be better off with this kind of activity than with the ordinary direct allocative and organizing activities often pursued by states to further development. And when the citizen is better off, he is able to pay more taxes. In short: process control generates state power. One should also consider the "caging effect" discussed by Mann (1986). The development of state and civilization had a "caging effect". Even in the early empires most people found it did not pay to vote with their feet and leave the jurisdiction of the state despite repressive practices and heavy taxes. A guide to such conscious maximization of state power can be found in what have been called a property rights perspective on institutional development (Bromley 1989a). Much of the transactions of a society can be viewed as involving negotiations about, explications of, transfers of, and enforcements of property rights. The rules for such activities as well as the restrictions on Reading notes on property rights an d institutions    __________________________________________________________________________________ 107  how property rights can be defined and distributed are a significant part of the motivations and actions of every citizen and shape the aggregate outcome of their actions more powerfully than any kind of direct regulation of their activities. In the present paper a property rights perspective on institutional development will be used to discuss some of the problems involved in the management of land use and to comment on the role of equity and distributional justice in sustainable resource utilization. Property rights and resource utilization: A stylized example As a baseline for the discussion we shall present a stylized illustration of how variations in property rights institutions may affect resource utilization. The example is stylized because it assumes that population pressure and history (or cultural practices) do not affect the decisions on land use. It is also assumed that no outside forces are interested in the outcomes of the decisions of the participating actors except to stop war and homicide. The tragedy of the commons Suppose a clearly delimited tract of land is owned in common by two tribes of traditional pastoralists. There is no one who can force either of them to limit their number of cattle. From old on, feuds and diseases have kept the number of cattle (as well as people) about constant. For the sake of argument, say that for both of the tribes the herds have been fluctuating about 5000. But times are changing. A distant state administration (perhaps colonial) has prohibited the old feuds. Development aid has eradicated diseases among both people and cattle. Now the traditional competition about which is to become the more powerful tribe can unfold. But note that instead of competition for wealth and power symbolized by a large herd, a historically more credible cause of the same development may be attributed to population growth. Then, however, the process will take more than one generation to be completed. The tribes start to add cattle to their herds. The development expert looks on the process in despair and tells the tribes they have to reduce the number of cattle, otherwise the cattle will starve and they will both be poorer. Now, the chief is not stupid. He can see the merit of reducing the number of cattle. He understands that by adding an animal to his herd he can Reading notes on property rights an d institutions    __________________________________________________________________________________ 108  reap the whole benefit of that animal while the cost in terms of diminished grazing is shared by the other tribe. But he also sees that if he reduces his herd, the competitor can get away with a larger herd and his fellow tribesmen can accurately accuse him of having given away the grazing rightfully theirs. And even worse, if he reduces his herd and the competitor does not, he effectively concedes victory to the other. True, he will have more cattle than if he continues to contribute to the overexploitation. But the other chief will have many times more. What shall he do? Turn "chicken" and concede victory to avoid the catastrophe threatening both or go on adding cattle to his own herd hoping the other will turn "chicken"? Most people in such situations will choose to go on adding cattle to their herds, either hoping the forecasts of ecological catastrophe are exaggerated or hoping it will take a long time. However, sooner or later the tragedy will be manifest. Cattle starve. Men starve. In the absence of restraints (war, disease, cultural practices), "freedom in a commons brings ruin to all" (Hardin 1968, 1244). Table 7.1 The tragedy of the commons. Payoff matrix in a game of "chicken" Cattle tribe B More cattle Same number of cattle Cattle tribe A More cattle 2 4 2 7 Same number of cattle 7 5 4 5 The sensible thing to do is, of course, to do something else entirely. The two tribes should come together to negotiate an administration of the tract of land which can determine how many cattle each tribe can have and with power enough to enforce the agreement. The common property management systems found in various cultures do exactly this. They manage the common land with a view to keeping up its productivity. But the management institutions are never the result of negotiations. They have evolved as part of a culture. The sustainable solution may, however, be Reading notes on property rights an d institutions    __________________________________________________________________________________ 109  based on both war and illness. The end of war and the introduction of modern medicine may therefore easily result in a population pressure which alone renders the traditional utilization unsustainable. The rapid social changes in the current world and the large negative consequences of unsustainable utilization of resources, means that one can no longer trust the development of sustainable institutions to the historical process. Neither are most people willing to accept the starvation and suffering of people subject to the traditional historical processes regulating resource utilization. Instead of the slow trial and error process of history, we have to think through the problem to consciously design those institutions which now will give a sustainable utilization of the resources. The first problem to face in this endeavour is to understand the forces shaping the traditional management institutions. A first step is to note that negotiations, administration and enforcement of contracts are not costless activities regardless of how a contract was established in the first place. Transaction costs Costs connected with the negotiating of an agreement and the policing of its execution are called transaction costs. In particular the monitoring and policing costs may be high in long-term agreements on resource management. It is a point to try to minimize these. For the pastoralists the point of a new institution must be to induce them to stop adding cattle to their herds. This can be done by direct regulation of the number. This, however, requires comparable control data: counts of the herds at regular intervals. If, for example, the herds mingle, they have to be separated first. The cost of securing data for direct regulation may be considerable. But there is also an indirect approach to the problem of regulation based on the causal mechanism making regulation necessary in the first place. One basic reason for continued growth of the herds in the situation described is that he who adds to his herd can reap the benefit of the added cattle while he does not have to pay the full price in terms of the resources used. The price is shared by the other tribe. The unregulated Reading notes on property rights an d institutions    __________________________________________________________________________________ 110  increment in use of the land entails costs also for those not consenting to the use decision. This is the gist of what is meant by externalities. External (dis)economies An often cited definition of externalities says that: "An externality is present whenever some individual's (say A's) utility or production relationships include real (that is, nonmonetary) variables, whose values are chosen by others (persons, corporations, governments) without particular attention to the effects on A's welfare." (Baumol and Oates 1988, 17). The chief who decides to add cattle to his herd affects negatively the grazing possibilities of the other tribe as well as his own. The action represents an external diseconomy for the other tribe. If one compares externalities and transaction costs they may from one perspective seem equivalent. The total social cost of those suffering polluting activities may be both less and more than the total social cost of enforcing a ban on this particular activity. From a purely economic efficiency point of view one might perhaps conclude that if the total social cost of those suffering the activity is less than the cost of removing the activity, then the activity should be allowed to go on. This conclusion is wrong even if one disregards the problems of measurement. The big difference between negative externalities and transaction costs is the possibility of distributing the transaction costs equitably An alternative to direct regulation of the number of cattle is to concentrate on "internalizing" the externality. If there is any way of securing that the cost of adding cattle to the herd will affect only the tribe which adds the cattle, one might hope that they, in enlightened self-interest, would choose to limit the number of cattle. Then one would save the costs of the bureaucracy involved in direct regulation. For the case discussed above, introduction of boundaries would be one such solution. If both land and water and any other valuable resource in the area can be equitably divided by a boundary, a fence maintained by the two tribes would seem to provide the solution with the lowest transaction costs to the problem of giving incentives for an ecologically sustainable resource management. Reading notes on property rights an d institutions    __________________________________________________________________________________ 111  Complications: the free rider and the game of holdout Two tribes in a clearly delimited area is of course the simplest possible situation one can imagine. In any real life situations there will be more actors involved and the area will not be very precisely delimited. If an area is truly common property (as commonly understood) for those who use it, any kind of institutional change will require unanimous support of the involved actors. In this situation one often will find some actor more or less openly playing the game of holdout. The more profitable the institutional change is seen to be, the more likely it is that someone will find it to their advantage to play difficult to secure an advantage for themselves. The one holding out on the agreement to execute the change will, by being difficult, often be able to secure for himself a larger than fair share of the profit of the change, or, at least, by postponing the venture, put it in jeopardy of not being executed. If one of the advantages granted to the holdout is to be exempted partly or wholly from the costs involved in the institutional change, the holdout is also a free rider. Free-riding can, however, also occur in situations without institutional change. If some actor is able to avoid paying or contributing to the activities necessary to keep up an institutional structure, the actor is called a free rider and the contributions of all others wanting to maintain the institution must be increased. Taxes and the prisoner's dilemma Consider, for example, a village which has been keeping the grazing land as common property, with direct regulation of the number of cattle for each member of the society and a police force to monitor the compliance of the regulation. For various reasons many of the villagers have fallen on hard times and the village council votes to exempt them from paying their taxes. The taxes for the rest increase, of course. However, it is hard to do much about poverty by exempting the poor from taxes. Somehow times do not improve. The image of reality in the council deciding on the issue is now that tax exemptions are necessary also for the entrepreneurs to further the industrial development of the village. Even more people are exempted from taxes and the few who still pay, begin to calculate what they gain by cooperating. At some point in this process those who pay taxes are faced Reading notes on property rights an d institutions    __________________________________________________________________________________ 112  with the prisoner's dilemma: shall I continue to pay taxes or shall I defect to reap as many benefits as possible while the system lasts. Those who cooperate by paying the transaction costs of the institutional regulations may soon find that the cost of providing for the free riders exceed the gain of the regulations. If they turn egoists they may still take out some profit before the system collapses and leaves everyone poorer. They may even find that they now have less left than they will have if everyone turns egoists. The tragedy of the commons returns. And with a vengeance, the prisoner's dilemma leaves considerably less possibility for a happy ending than the game of chicken. One should perhaps call this result the tragedy of a faulty state. Not quite as catching a phrase as the tragedy of the commons, but it points to the important problem of distributional justice. From the description of the management of the common property of the village there is but a short step to consider the modern democratic welfare state with its interest group politics. In some instances it might be illuminating to describe the state and its tax base as an open access resource. The implications are obvious. The tragedy lies in the fact that they all will have only a fraction of what they would if all were cooperating to pay the transaction costs. Table 7.2 The tragedy of the commons Payoff matrix in a game where free riding has turned the game of "chicken" into the game of "prisoner" Type B individual Egoists Cooperators Type A individual Egoists 2 1 2 7 Cooperators 7 3 1 3 Reading notes on property rights an d institutions    __________________________________________________________________________________ 113  Discussion The preceding brief and stylized example suggests two important conclusions:  The introduction of properly defined property rights relative to a suitable social environment can encourage ecologically sustainable resource management.  It is necessary to consider carefully the distribution of the costs of maintaining the institutional system defining and maintaining the property rights. In relation to the first point it must be of particular interest to investigate the circumstances which render private property rights a suitable instrument for securing sustainable resource utilization. There is no reason to believe that ecologically sustainable resource management follows automatically from the introduction of private property rights. Several types of social environments might be imagined suitable for private property rights to encourage sustainable resource utilization. However, a priori, it would seem reasonable that they all should show the following characteristics: 1) the owners of resources are secure in their possession, and 2) the interests of the owners of resources are long-term. For the owners to take a long-term interest in the management of their property, a first requirement is security of the property. Security of property is always a question of belief in a guarantee given by a state (or its equivalent). The trust in this guarantee is liable to how the state performs its tasks. In particular it would seem a good test to watch the security of property visà-vis the state in situations of conflicting interests. But security of property is not enough to secure sustainable utilization. The temptation of short term gains will always be around. One way to induce a long-term view of the utilization might be to convince people that if they exploit the resources for a maximum short term gain, they have to suffer some kind of negative consequence. A necessary requirement of the state would seem to include either non-interference if some owner comes to suffer negative consequences of bad resource management or directly administer a measured quantity of negative consequences itself. Reading notes on property rights an d institutions    __________________________________________________________________________________ 114  Historically non-interference seems to have been the norm. A policy of non-interference would seem more feasible if the land (and in general the property) is divided among many rather than among few owners. With many holders of property the consequences of bad management will on average be less per decision maker and the learning potential, in terms of what is good management, larger. Usually the penalty of not taking the long-term view has been starvation and/or loss of property. Starvation does not seem to be a suitable penalty in contemporary society. What is a suitable penalty is a difficult question. But if private property rights, as historically developed, shall encourage sustainable resource utilization, the promise of short term (and sometimes large) gains has to be balanced by a suitable threat. If society is unwilling to contemplate consequences like starvation and poverty, if the state on humanitarian grounds finds that it must bail out those coming to suffer the consequences of unsustainable resource management, or if the property rights system allows the owners to transform the extracted resources into profits, regardless of whether they are extracted sustainably or not, and invest them in other profitable activities, then the ecological argument for the private property rights disappear and direct intervention must be preferred even if the transaction costs then are considerably higher. The analytical ideal type of private property without government regulation except guaranties for boundaries and security for transfers of property rights can be contrasted with the ideal type of state property with direct regulation of all resource utilization. Societies with ideal typical private property or ideal typical state property are not known to exist historically. By state it is here meant the system responsible actor all rational resource utilizers would choose to establish. For short periods of time some societies have approached a situation which may be analysed by the ideal typical concepts. Usually the property rights system of a society will be a mixture of the two ideal types. But of course, in a modern welfare state the alternative to private property rights is not state property. The debate concerns the proper division of rights into rights the state has to own and rights which private actors have to own. Very much of ideological and political activities are directed at the demarcation and adjustment of the boundary between private and state interests. The result of the struggle are manifested in laws and regulations Reading notes on property rights an d institutions    __________________________________________________________________________________ 121  may analytically distinguish four important aspects of resources. In addition resources are special in that they are either renewable or depletable. The following discussion is much inspired by Ostrom and Ostrom (1977). Table 7.4 Types of resources Consumers are The resource is Excludable Non-excludable Divisible 1. private 2. positional Indivisible 3. public 4. club 1. Private resources. Money is the perfect, ideal typical, private resource. There are no problems of either divisibility or excludability. The possessor can transfer any part of such a resource to other actors or transform it to a wide variety of benefits, and has absolutely no problems excluding anybody from access to it. Most of what are called natural resources, from land and water to bulk commodities like grain or crude oil also fall into this category. For some resources, however, it is impossible or illegal to exclude anyone from taking possession of a part. This may happen because the technology to exclude does not exist or because abundance makes it too expensive to exclude those who want a part or because equity considerations lead to the conclusion that everybody has a right to access to the resource. These resources can be called positional if the consumption of such resources by one actor may affect the benefits available to other consumers. Water will for example fit this description in several contexts. Downstream from the first user both the amount and quality of the water in a stream will be affected. 2. Positional resources. Whenever non-excludability for a divisible resource exists, the number of consumers and the quantity consumed may affect the quality and quantity available to those not currently consuming the resource. The result, usually, is either some kind of queue to gain access (implying some kind of rationing rule ordering the queue) if there are bounds on the quantity available at any particular time, or, if there are too many consumers, the Reading notes on property rights an d institutions    __________________________________________________________________________________ 122  result is a deteriorating quality of the resource, like the grazing land discussed above. The deteriorating quality may arise either because the use of the resource includes leaving some waste behind (e.g. water pollution) or because the rate of renewal of the resource is affected by the rate of consumption (biological resources). 3. Public resources. If consumers are non-excludable and the basic resource is indivisible, there will be no actor in a position to exclude others from taking possession of the resource. Sunlight, trust in the legal system of the area, the language of a culture as a means of communication, etc.: the resource is there for the use by anyone wanting to. Nobody can deny it to anyone, nor can it be acquired partly. However, sometimes those wanting to make use of a theoretically nonexcludable and indivisible resource, like a public square, can experience crowding phenomena. If too many or too few users of a resource affect the utility of the resource for other marginal users, the resource may be called a club resource. The resource, even though indivisible, is not really nonexcludable. 4. Club resources. Knowledge and technology are typical examples of resources where possessors can exclude others from access and where the resource itself is indivisible. A part of a technology or a bit of knowledge may be something to possess or even bargain with, but not much of a resource in itself. It is a resource only if all of it is appropriated. However, the utility of the resource depends heavily on how many others possess the same resource. If too many possess it, its value decreases. If too few possess it, its potential value may never be realized. The utility of the resource is affected by crowding phenomena (too many or too few users). Types of resources and types of ownership It is interesting to note that the various types of resources thus identified have a certain correspondence to the types of ownership discussed above. In particular it would seem that a pure club resource might be suitable for common ownership like for example the stock of knowledge and know-how Reading notes on property rights an d institutions    __________________________________________________________________________________ 123  sustaining a profession. A pure public resource would need no ownership and a pure positional resource, if that could be found, would, perhaps, require state ownership. Most real resources will contain aspects of more than one of the types identified. The distinctions are, however, important for the design of property rights in that rules of transfer must depend on the possibility and cost of excluding some non-owner from the resource (the transaction costs and possibilities for generating externalities from enforcing a contract of transfer of rights). And it must take into consideration to what degree the resource (or more precisely the value of the resource) is divisible. If the value is indivisible it is most probably inalienable as well (like knowledge or skill once acquired). Conversely considerations of entitlements and equity may lead to considerations of inalienable rights. The rules defining and protecting such rights then has to conform to the rules governing club resources and public resources. Property rights and sustainable development If we apply the insights into property rights gained so far to the problems of sustainable resource development, the transaction costs and externality considerations may lead to some kind of regulated private property rights system as the solution. Taking further into account the problems of securing justice and equity, one sees that solving problems of transaction costs and externalities will hardly contribute to sustainable development unless all relevant actors of the society have an initial endowment of property rights giving them a minimum capability of long-term planning of their lives. Sustainable resource utilization requires long-term commitment on all decision making levels. In real life the distribution of power and de facto property rights are often very skewed. In particular there are in many societies a substantial and often growing population without property except for their own labour power. If a property rights system is designed presupposing that all actors have an initial minimum endowment of resources in addition to their own labour power (e.g. education or land), the implementation of this system in a Reading notes on property rights an d institutions    __________________________________________________________________________________ 124  population where some part of it do not have the necessary initial endowment, will not do much to solve the problem of sustainable resource utilization. Even if one were able to disregard the humanitarian considerations and wanted to write off the "surplus population", it would be likely that transaction costs like the policing costs, i.e. the costs of protecting the rights of the owners against the non-owners, would be prohibitively high. Without the will to distribute the initial endowment of property rights, the introduction of a property rights system designed to circumvent the irrationalities inherent in current utilization processes will do no good. If a society is able to endow each citizen with a minimum initial bundle of resources, then the state should, at a minimum, make an effort to secure the fairness and validity of the transactions which the citizens enter into, rather than worry about any particular outcome of the actions. This is in any case important both to its authority and to the legitimation of the system, but it may also be a part of the motivation for a sustainable development. To further encourage a long-term view on the use of resources, the state also should make an effort to guarantee the long-term validity of a property relation. If loss of property is an everyday and frequent experience, no rational actor will take a long-term view on investment and use of resources. Unsustainable utilization of a resource should be penalized with a minimum of costs. Overexploitation will, in the minimal state, carry its own penalty. Pollution does as well. But, in addition, pollution usually affects neighbours. Giving the neighbours legal remedies not only to stop polluting activities, but to appropriate the possible gain the polluter has had from the activity might prove effective. But in a welfare state the penalties of overexploitation and pollution sufficient in a minimal state are not acceptable. The problem of appropriate penalties remains. But even agreeing on appropriate penalties is not enough. To enforce them one has to be able to distinguish criminal behaviour from simply ignorance and bad luck. What do seem to emerge as a conclusion is that both equity in initial distributions and a state resembling remarkable the democratic rule-of-law state are necessary prerequisites for achieving sustainable resource utilization. Reading notes on property rights an d institutions    __________________________________________________________________________________ 125  APPENDIX SOME DATA ON THE CONSUMPTION OF WELFARE GOODS ACCORDING TO CLASS11 Use of the transportation system and the medical services The arguments above have been about road systems and hospitals. The data available refer to travelling by any means, and to access to physicians or dentists. 1. Access to medical services Both the requirement that the health system shall provide medical treatment for all, and the queuing system of rationing, indicate that use of the system ought to be strictly according to need. This means that if we control for need in terms of illness we should find no differences in the consumption of medical services according to income. This is exactly what Elstad (1991) finds in the Norwegian Health survey of 1985 (table 1). Here Elstad finds differences in need according to social class. The lower classes are more ill and thus more in need of health services. Uncontrolled for degree of illness, the lower classes consume more of the health services than the upper classes. This is also found by Townsend and Davidson (1992 [1982]) and Whitehead et al. (1988). But they argue the differences in illness are so large that if one were to control for need and take into the account longer consultations and the possibility of better quality of the services rendered upper class people, the higher classes will come out as those best served by the health system. This means that at least access to the medical services functions exactly as they are supposed to do. Dental services in Norway are in our terms private goods. After the age of 18, people have to pay the dentist to take care of their teeth. Both the nature of the good and the needs of the consumer are comparable to those of the primary health services. Even the arguments for making it into a public good could be duplicated. It is, however, organized as a private good. When Elstad looks at differential use of dental services according to social class, he finds that class differences are significant and even large (table A.1).  11 The observations presented here were collected during the writing of Berge (1991a). Reading notes on property rights an d institutions    __________________________________________________________________________________ 126  Table A.1 Proportion having seen a physician and a dentist during the last year according to occupational activity, sex and social class* Dentist Physician Occupationally active Women low status 78 81 high status 82** 84 Men low status 68 74 high status 81*** 73 Occupationally passive Women low status 48 84 high status 69*** 78 Men low status 31 80 high status 45*** 86 *The distinction between high and low status is based on occupation for those with an occupation and on household income for those without an occupation (Elstad 1991). ** Differences are significant at the 5% level. *** Differences are significant at the 1% level. Source: Elstad (1991) , Table 3. Access to the transportation system The transportation system comprises a lot more than the roads and the daily travelling includes much more than commuting to work. Neither is the need concept as easily agreed upon as for the medical services. Also the use of the transportation system requires a resource input from the user unlike the medical system (but like the dental services). Even if travelling for the most part is an activity minimized rather than maximized, the arguments for no differences according to social class in the length of daily travel or time used for travelling do not follow. But accepting the argument that daily travelling is a necessity and a cost to be minimized rather than maximized, it would seem reasonable that upper class persons would try harder to keep the time used travelling low than to keep distances travelled short. This would reflect resource differentials among travellers. If there are need-differentials among occupational groups in addition to the resource differentials, there will be trade-offs between time used for travelling and cost of higher speed. Data from the travelling behaviour survey of 1985 (Stangeby 1987) shows Reading notes on property rights an d institutions    __________________________________________________________________________________ 127  both the higher resource input and the probable confounding effect of need differences. Table A.2 Distance (in km) travelled and time (in min) used travelling each day according to socio-economic status. mean distance per trip travelled mean number of trips per day mean time used per trip travelled distance travelled per day travelling time per day Unskilled labour 12.6 3.3 21.8 41.6 71.9 Skilled labour 9.4 3.5 20.2 32.9 70.7 Lower white collar 8.4 3.3 18.3 27.7 60.4 Middle white collar 12.3 3.6 23.5 44.3 84.6 Higher white collar 16.1 3.7 24.9 59.6 92.1 Farmers/fishermen 13.1 2.7 25.9 35.4 69.9 Other self-employed 14.7 3.6 21.4 52.9 77.0 Students 8.3 4.1 19.9 34.0 81.6 Pensioners 8.2 2.0 20.9 16.4 41.8 Work at home 8.0 2.5 19.9 20.0 49.3 Others 14.8 2.9 27.1 42.9 78.6 All persons 10.8 3.2 22.0 34.6 70.4 Source: Stangeby (1987), figure 10, 11, and 12. Table A.2 shows that those in higher white collar occupations travel the longest distances and use the most time travelling each day. Pensioners and students travel the shortest distances and use the least time, but not much less than those in lower white collar occupations who again are below skilled and unskilled labour. Travelling differentials measured in km are however larger than those measured in minutes. This comes out clearly in table A.3 where average speed of daily travelling as well as relative differentials for speed, distance and time has been computed. Speed may be used as an indicator for the cost of travelling. Those putting the most resources (time and the cost of speed) into travelling to buy distance are the higher white collar occupations. The self-employed other than farmers/ fishermen buy the highest speed, but Reading notes on property rights an d institutions    __________________________________________________________________________________ 128  use only about the same time travelling as the average person. Except for the higher white collar occupations and the self-employed other than farmers and fishermen the differentials in travelling speed are small compared to differentials in distance and time. This may presumably be attributed to the subsidies which makes travelling at the average speed available and fairly cheap for all. If distance is taken as a need measure, there seems to be some trade-offs between time and speed. Table A.3 Travelling speed and relative inequality in speed, distance and time travelled according to socio-economic groups Speed km p er hou r relative s p ee d relative distance inequalities in time Unskille d labou r 34.7 118 120 102 Skille d labou r 27.9 95 95 100 Lowe r white colla r 27.5 93 80 86 Middle white colla r 31.4 106 128 120 Hi g her white colla r 38.8 132 172 131 Farmers/fishermen 30.4 103 102 99 Othe r self-em p lo y e d 41.2 140 152 109 Students 25.0 85 98 116 Pensioners 23.5 80 47 59 Work at home 24.3 82 58 70 Others 32.7 111 124 112 All persons 29.5 100 100 100 Source: Table A.2 above. If we make the same calculations of time and distance used travelling for income groups as for occupational groups, we get much the same picture (tables A.4 and A.5). Particularly for the four middle income groups, the linear increase in the use of both time and resources for buying speed is impressive. The deviance of the lowest as well as the highest income group may be interpreted in several ways, but the unreliability of both particularly low and high incomes are well known. Reading notes on property rights an d institutions    __________________________________________________________________________________ 129  Table A.4 Distance (in km) travelled and time (in min) used travelling each day according to income groups mean number of trips per day mean length of trips mean time used per trip travelled distance travelled per day travelling time per day Income: less than 40 000 2.5 9.8 24.1 24.5 60.3 40 - 79 000 2.3 6.7 21.8 15.4 49.5 80 - 159 000 3.0 9.5 21.2 28.5 63.6 160 - 239 000 3.5 10.5 20.2 36.8 70.7 240 - 319 000 3.6 14.2 23.4 51.1 83.5 320 and more 4.0 11.8 20.5 47.2 82.0 All persons 3.2 10.8 22.0 34.6 70.4 Source: Stangeby (1987), figure 13, 14, and 15. 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