Opportunities and Limits for the Evolution of Property Rights Institutions

In this paper, Thráinn Eggertsson examines how assumptions based on national politics and hard-to-obtain and limited data yield valuable tools for exploring the logic of institutional changes to property rights. After introducing some basics of the economics of property rights, Eggertsson explores six case studies from his native Iceland, where relatively simple and transparent institutions are ideal for identifying general applicability of their social outcomes. This was the keynote address at the Lincoln Institute conference “Evolution of Property Rights Related to Land and Natural Resources”, held in Cambridge Massachusetts in September 2010.

Those six cases cover a broad range, from feudal- like institutional structures that obstructed modernization of fishing technologies and led to widespread starvation in premodern Iceland; to communal pastures in Iceland’s mountainous regions that still persist after more than one thousand years; and to Iceland’s ongoing financial crisis affect on the political controversy over property rights in health records. Each of these cases illustrates concepts and topics in the current mainstream of new institutional economics (NIE). Eggertsson moves beyond the NIE mainstream to explore new directions stemming from work on social- choice theory showing how uncertainty and competing models for global resources affect individual and social choices.

As an example, Eggertsson examines the evolution of Iceland’s persistently controversial system of fisheries regulation based on individual transferable quotas (ITQs). This system has been highly influential around the world, but it seems to be on the brink of being dismantled in Iceland because of a lack of social fit, stemming in large part from its institutional design. That design (1) reflected a “hodgepodge of conflicting social theories,” which left the property status of ITQs ambiguous; and (2) resulted in huge windfall profits for the original recipients of fishing quotas, many of whom subsequently left Iceland, taking their profits with them. The design issues created both legal problems—the United Nations Human Rights Committee ruled in 2000 that Iceland’s method of initially allocating fishing quotas only to experienced vessels violated international human rights law—and large- scale public dissatisfaction with the system. Because of that dissatisfaction, the system is now in jeopardy, even though it produces wider social benefits and ecological benefits for fisheries, and despite the fact that current holders of quotas paid a great deal of money for them and are not reaping windfall profits. Eggertsson’s paper provides an eye-opening introduction to the complex array of institutional design and implementation problems that confront efforts to conserve natural resources.

This paper was presented at the Lincoln Institute’s conference entitled “Evolution of Property Rights Related to Land and Natural Resources” in 2010 and is Chapter 1 of the book Property in Land and Other Resources, edited by Daniel H. Cole and Elinor Ostrom.