Download Contracting for Property Rights (Political Economy of Institutions and Decisions) fb2

This slim volume by Gary Libecap stands the test of time. It is still about as good as it gets in the applied and historically based literature on property rights and contract theory. Libecap has been, and continues to be, a major contributor to these areas. He knows all the details and case studies, but is able to paint broad and profound themes and uses the details and case studies to illustrate his points.

Libecap, Gary D. 1989: *Contracting for Property Rights,* Cambridge University Press, Cambridge, Melbourne, New York. He tracks particularly the absolute necessity to manage common pool resources effectively to avoid immense losses due to the unchecked play of the *rule of capture.* See Ostrom 1990, McCay and Acheson 1987, and other citations on the *commons.* Libecap details the history of several common resource problems: fisheries, oil pools, mining claims, timber lands and homesteads. The failure to reach solutions to common resource problems is extremely expensive: the sardine fishery in California was one of the largest in the U.S. in the late 1930s at 500,000 tons per year; by 1952 it was no longer viable (pp. 76,77); inadequate regulation of the salmon fishery in the Pacific northwest cut the catch to 25% and greatly increased costs, by eliminating the highly efficient fish traps and fish wheels; unitization of oil fields on federal lands in Wyoming resulted in greater extraction by factors of 2-5 (p. 95) versus the rule of capture (recovery rates of 20-25% [ the dog-eat-dog system of recovery thus destroyed up to 80 percent of the value of the pool; see dog-eat-dog in the index for more on this] vs. 85-90% with controlled withdrawal - p. 94); in addition, failure to unitize led to excessive storage capacity on the leases, and in severe overdrilling. A one acre lot in Kilgore on the East Texas field had 27 wells on it (p. 113), where an appropriate number would be from 1 well to nine acres to one well to 80 acres (p. 94) under unitization. Costs of excess drilling alone were in the hundreds of millions on single fields (e.g., p. 106; p. 113: 23,000 unnecessary wells at a per well cost of $26,000 - over $600 million excess cost; See Thayer 1984, Gates 1998 and Anderson(T) and Leal 1991 for more on excess capacity), while the costs of lost extraction are multiples of the total oil that was eventually produced (p. 95). P. 95: *Despite these attractions for mitigating the substantial losses involved in common pool crude oil production, complete fieldwide unitization has not been widespread. Bain (1947, p. 29) noted: *It is difficult to understand why in the United States, even admitting all obstacles of law and tradition, not more than a dozen pools are 100 percent unitized (out of some 3,000) and only 185 have even partial unitization.* similarly Libecap and Wiggins (1985) reported that as late as 1975 only 38 percent of Oklahoma production and 20 percent of Texas production came from fieldwide units. Just why this is so is the subject of this chapter. The key issue in blocking agreement on the voluntary unitization of oil fields is conflict over a share formula to divide the net proceeds of unit production among the various parties.* [ Market failure, business failure, government failure, or just plain social failure? - WHC] See Williams and Meyers 1995 for more on the laws of unitization. See Clark 1976 for the mathematics of resource utilization. See Krishna and Serrano 1996 for solutions to the `who gets what problem' in multi-agent bargaining. See Frederick C. Thayer "An End to Hierarchy, an End to Competition" for a devastating treatment of the harmful effects of competition.

See Miles 1999 for the UN as a source of the determination that fisheries cannot be sustainably developed under an open access regime.

Libecap emphasizes the use of land policy to implement social goals: P. 33: Egalitarian thought led to limits on the size of claims and in the requirement to work on the claim or to be treated as abandoning the claim; p. 34: the piecemeal distribution and avoidance of large claims and holdings was seen as essential to a cohesive society; 35: small holdings were intended to create a middle class and avoid the class hostility endemic in Europe. P. 35, 39 the requirement to settle and to improve was basic, as were limited size of claims and protections against hoarding. P. 41 disputes were settled locally in miner's courts (see Thibaut and Walker 1975 and 1978 for the preference of disputants to make some of their own rules; also Macauley 1963 and references there for more on self-enforcing, decentralized laws.

Libecap discusses the role of government in promoting economic growth. He cites Friedman 1985 for a number of general and specific discussions and examples of the vital role that government played in the dynamic growth of the U.S. as a whole. Professor Scheiber is cited in this respect also, for his opus on the Ohio canal era.
See also:
Libecap, Gary D. 1999: *The Self-Enforcing Provisions of Oil and Gas Unit Operating Agreements: Theory and Evidence,* Journal of Law and Economic Organization (JLEO) v. 5, n. 2, July 1999, pp. 526-548.
The above is from my unpublished book of notes PQOLVOL1. For complete citations email [email protected]