Order Without Law, Robert Ellickson

Robert Ellickson's Order Without Law is a study, as its sub-title says of "How Neighbors Settle Disputes". Ellickson starts with a deep dive into how ranchers and farmers in Shasta County, in the rural northern part of California actually deal with a problem that Richard Coase brought up in a classic paper on transactions costs. In "The Problem of Social Cost", Coase argued that if transaction costs were irrelevant, it wouldn't matter how property rights were allocated. Regardless of whether ranchers were responsible for keeping their cattle from straying or farmers were responsible for keeping unwelcome beasts out of their crops, the same solutions would be reached. If the law doesn't allocate responsibility to the low cost actor, then according to Coase the other party would find a way to pay the other party to do the cheaper thing. Of course, most of the argument since then has focused on the fact that transaction costs are seldom negligible.
Ellickson says that Shasta County is uniquely positioned for a study on this issue

Shasta County is "open range." In open range an owner of cattle is typically not legally liable for damages stemming from his cattle's accidental trespass upon unfenced land. Since 1945, however a special California statute has authorized the Shasta County Board of Supervisors, the county's elected governing body, to "close the range" in subareas of the county. A closed-range ordinance makes a cattleman strictly liable (that is liable even in the absence of negligence) for any damage his livestock might cause while trespassing within the territory described by the ordinance. The Shasta County Board of Supervisors has exercised its power to close the range on dozens of occasions since 1945, thus changing for selected territories the exact rule of liability that Coase used in his famous example.

This is the kind of change that economists love to study, because they can look at how behavior changes over time and treat the change of law as an independent variable. Any consistent changes in people's activity after the law changes can be treated as the result of the legal change.Ellickson focuses on how neighbors actually respond when trespasses occur. The book is filled with colorful stories giving details of what happened when particular responsible or irresponsible ranchers allowed their livestock to wander. The main observation is that while people were generally aware whether their property was in 'open' or 'closed' lands, their resolutions to incidents had little to do with what the law called for and more to do with a commonly accepted wisdom about that cattle owners are morally responsible for the damage. According to Ellickson, this fits Coase's model, since cattle owners are the low-cost provider. There are a variety of different types of pasture throughout Shasta County, and the cattle owners know more about how densely they are using any particular piece, and are more aware of which neighbors are most sensitive to their intrusions.
One of the most important enforcement mechanisms that Ellickson cites is plain simple gossip. Most of the people he talks about are eager to make things right, rather than be the subject of their neighbors' pointed comments. There is one member of the community who gets discussed a lot, but there are more extreme measures available when there are repeated run-ins, and one party is a consistent non-cooperator.
Ellickson is a good story teller and an astute observer. While the subjects of his study are less tight-knit than the farmers Ostrum described, there is enough social cohesion so that norms develop, and neighborliness is for the most part, a stronger limitation on people's interactions than actual laws.




0.3productChris Hibbert

The Rational Optimist, Matt Ridley

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Chris Hibbert

Matt Ridley's The Rational Optimist is a very well written ode to the value of trade and how it contributes to a rational confidence that things will continue to improve for humanity as they have since we first appeared in the world.

Ridley's previous books have mostly been on evolution (though that includes the evolution of cooperation and virtue). Here he's focusing on how trade enriches us all, and how far back trading goes. He uncovers new evidence for the richness of trading in antiquity. One example is Oetzi, the mummified ice age hunter revealed by a receding glacier in the alps in 1991:

[He] was carrying as much equipment on him as the hikers who found him. He had tools made of copper, flint, bone and six kinds of wood: ash, viburnum, lime, dogwood, yew and birch. He wore clothes made of woven grass, tree bark, sinew and four kinds of leather: bearskin, deer hide, goat hide and calf skin. He carried two species of fungus, one as medicine, and other as part of a tinder kit that included a dozen plants and pyrite for making sparks.

Ridley's point is that Oetzi couldn't have collected, sewn, tanned, woven, smelted and sharpened everything he carried himself. The only way he could have accumulated so much useful equipment was through trade. I'm used to arguments for the early emergence of trade that show that quantities of obsidian or sea shells was found hundreds or thousands of miles from where it would have been regularly collected, but Ridley goes to great lengths to display evidence that trade was pervasive and that early people everywhere relied on it extensively for many items in their daily repertoire. It wasn't just an occasional trade for a high-value item, it was a part of routine life, and part of what people ate, wore, and used for healing, hunting, and food storage.

Ridley also carefully lays out the case for Ricardo's point that trade makes us all richer. Expanding the extent of trade increases the size of the market; with more people in your trading community, you can draw on the efforts of specialists who multiply the overall productivity you can take advantage of. Ridley argues that the increasing returns from trade taught our ancestors the value of trust and led to to more virtuous interactions, and better ethical instincts among our ancestors.

The underlying point of much of this is that increasing communication, increasing interaction leads to more and better ideas as we recombine the ideas in new ways, and this leads to the production of more wealth. Around the time of Malthus, it was still possible to argue that increasing production of wealth just made it possible for populations to increase, and didn't really make anyone better off. But sometime in the last two hundred years that started to change, and the recent demographic transition has made that position completely untenable. But pessimism is still more widely respected, and Ridley wants us to understand that a reasonable understanding of the sweep of history and of our evolutionary origins makes optimism a much better fit with our circumstances. Things have been getting better for hundreds of years, and while we can imaging things that might change that, none of them seems particularly likely.

More people are moving to cities where they are more productive and have fewer children. They live wealthier lives than before, and insist on and can afford a cleaner environment and healthier lifestyle. Government restrictions could prevent progress, or trap people outside the cities, or make it harder for them to buy the lifestyle and environmental values they will want, but the smart money goes with the trends. Ridley thinks that the pressure for progress will be sufficient to move governments out of the way, and that spontaneous order will enable people to get what they want. Technology will enhance our healthspan, and our ability to travel and communicate will continue to grow. We'll spend less time working and more on other things. China and Brazil will lead the way if politics in the West grows too stifling.

Simple Explanation of Prices

One of the podcasts I listen to is Russ Roberts' "Econtalk". In a recent podcast on Hayek, he was talking with Bruce Caldwell about the price mechanism and how markets adjust when circumstances change. They referred to Hayek's article "The use of knowledge in Society", a classic article I've heard of many times. This is the place where Hayek conclusively settled the Socialist Calculation Debate, which had raged for a couple of decades to that point. It's remarkably readable.

The podcast also referenced Roberts' own short article "How Markets use Knowledge". This article gives a concrete example of how markets adapt to changing circumstances, using a simple intersection of supply and demand curves. As circumstances change, suppliers and consumers adapt, by changing the amount they produce or consume, and the changing price gives each all the cues they need to choose a new course of action. Roberts shows how their adaptations respond to the context and the information they each have so different economic actors make different choices in differing circumstances. It's simple and elegant.