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Towards a More Evolutionary Theory of Property Rights

I. INTRODUCTIONOne of the main purposes of the literature on property rights is to understand the process through which they arise and change over time. Because property rights change, it has been natural to call the process the "evolution of property rights." Yet in most cases scholars use the term "evolutionary" loosely to refer to gradual change over time and not to a well-defined process consisting of variation, selection, and heritability as in the Darwinian model of evolution. Classic papers in this literature such as Anderson and Hill's The Evolution of Property Rights? A Study of the American West (1975),1 Field's The Evolution of Property Rights (1989),2 Levmore's Two Stories About the Evolution of Property Rights (2002),3 and Libecap and Smiths's The Economic Evolution of Petroleum Property Rights in the United States (2002),4 have "evolution of property rights" in the title, but are based on an explanation of changes in property rights that is not founded on evolutionary theory, but rather on Harold Demsetz's hugely influential 1967 paper, Toward a Theory of Property Rights.5 Rather than postulating a mechanism based on evolutionary theory, Demsetz's approach is grounded in neoclassical economics, with property rights changing whenever the marginal costs of altering the rights are exceeded by the marginal benefits of reducing externalities that prevailed under the previous arrangements. This approach, which has spawned a voluminous literature, was branded the evolutionary theory of property rights. So much so that, in 2001, Northwestern University hosted a symposium, The Evolution of Property Rights, to commemorate Demsetz's seminal paper, which Demsetz personally attended.6 On close examination it is clear that Demsetz and most of the literature that followed used "evolutionary" as synonymous with change and not to suggest a mechanism more closely associated with Darwinian evolutionary theory. James Krier notes that Demsetz:[H]ad not claimed to view changes in property rights (or social change in general) "as an evolutionary process." Rather, he had sought only to suggest a positive theory that property rights develop in response to costs and benefits, choosing to "avoid the different, difficult problem of how property right adjustments are actually made."7Evolutionary theory is not restricted to biological processes, although that is how it originated and how it has been most frequently used. Instead evolution should be seen as a search process for fit design based on variation (recombination and mutation), selection of the fittest through greater reproduction, and replication/heritability, which can take place in many different substrates, such as culture,8 technology,9 language,10 creativity/ science,11 and business strategies.12 There are several treatments of property rights that adhere more closely to evolutionary theory such as Krier,13 Sugden,14 Hirshleifer,15 and several Austrian authors, such as Mises and Hayek, who were inspired by Carl Menger's account of the emergence and evolution of money to do the same to property rights.16Is there anything to be gained by adopting an approach more rigorously based on principles of evolutionary theory? Within the biological field there are controversies, even within the camp that openly accepts the basic Darwinian principles, which lead to bitter disputes over details and interpretations of concepts and mechanisms, such as the units of selection, the speed of evolution, and issues of optimality of outcomes. Applications of evolutionary theory to nonbiological areas are even more subject to criticism and dispute. In arguing for the usefulness of applying evolutionary principles to understand how technology (useful knowledge) evolves over time, Joel Mokyr warns that "applying a methodology from one field to another in a mad scramble for isomorphisms, shoehorning concepts into uses for which they were not intended seems a bad research strategy. …