Tuesday, January 24, 2006

wealth-maximizing norms


Okay: stunning paper by Ellickson. This guy is the dude. Dukeminier mentions his paper, "Wealth-Maximizing Norms: Evidence from the Whaling Industry," 5 J. Law, Econ. & Org. 83 (1989). (Available from Hein.)

If any of you have not been to the Mystic Seaport, I highly suggest it. When the whaling industry died out, the seaport just atrophied, unchanged, and was thus protected from modernity until its age became an asset. It was then basically pickled, and is now an extremely charming huge-scale museum of what Nantucket probably looked like during Moby-Dick days.

Ellickson argues against the old-fashioned view that property is created by the state, a view he notes is associated with Hobbes and (!) Calabresi. (Heee!) Instead, he thinks that social norms, without heirarchy, can be generated from scratch, and generally maximize wealth, as long as the participants are sufficiently close-knit.

Whalers were indeed a tight bunch, largely concentrated in geographically-isolated Nantucket, and having strong Quaker ties and mores. Whaling customs were invariably upheld by courts, so that these customs didn't just mimic law, they created law. There wasn't a lot of litigation, so the norms were pretty successful in making a first cut of property rights that satisfied everyone.

These norms minimized transaction costs and deadweight losses. That is, the first approximation to property rules tried to equalize the whaler's income with his contribution to whales captured. (Thus minimizing deadweight strategic behavior.) The second cut to the property norms simplified these rules, creating bright lines to avoid squabbles. This would reject ambiguous Livingston-like standards like "the whale's yours if you were in hot pursuit and had a reasonable prospect of catching it."

The final norms, historically summarized, are given on p. 30 of Dukeminier. The article finishes with an interesting discussion of how overwhaling affects his hypothesis.

This became a chapter in Ellickson's book, Order without Law.

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