Law and economics The tragedy of anticommons: Property in transition from Marx to markets

by Michael Heller

Introduction

In a commons-multiple owners are each endowed with the privilege to use a given resource, and no one has the right to exclude another. When too many owners have such privileges of use, the resource is prone to overuse - a tragedy of the commons.
In an anticommons-multiple owners are each endowed with the right to exclude others from a scarce resource, and no one has an effective privilege of use. When there are too many owners holding rights of exclusion, the resource is prone to underuse - a tragedy of the anticommons.

The Gradient of Property in Transition

Key Elements of Socialist Law
1. Hierarchy of Property - At the top was state socialist property, which received the most protection. Next came cooperative property, which received similar but less protection. Personal property received least protection. 2. Objects of Socialist Property - Because all productive assets were in principle "unitary" and belonged to "the people as a whole," socialist law did not delineate the ordinary physical and legal boundaries of private property. 3. Ownership of Socialist Property - The law integrated ownership of physical assets within overlapping state structures, often linking upward from a state enterprise, to a group of similar enterprises, to the local and then central offices of a ministry responsible for that branch of industry.
3

The Gradient of Property: Protection and Performance more protection property received under socialist law, the less successful its performance has been in a new market economy inverse correlation between protection and performance

Case study of empty stores in Moscow Within the legal and institutional context of the Moscow storefront, the main actors are a wide variety of state and quasi-state organizations April Harding notes that a major source of the ambiguity of local government ownership can be explained by conflicting efforts on the part of the federal government to strengthen general ownership and property rights, while it is also trying to constrain the property rights of local governments. four categories of rights-holders emerged during the transition: - Owners - Users - Balance sheet Holders - Regulators
5

Emergence of the Anticommons

Moving Along the Gradient: Kiosks, Apartments, Komulkas

Individual Apartments - The creation of private property in apartments lies at the opposite end of the protection and performance gradient from storefronts. Apartments provide a useful counterpoint to storefronts, in part because the physical space is often identical.
In socialist legal regimes, the standard property bundle for apartments was divided between private and public actors.

One price of achieving these well-functioning bundles is that governments have ignored certain distributive goals.

The apartment example suggests that:

Governments can avoid creating a tragedy of the anticommons by transfering coherent bundles in familiar objects. There may be a tradeoff between avoiding anticommons tragedy and achieving distributive goals in the initial endowment of property rights. When governments transfer coherent bundles of initial endowments in familiar objects, well-functioning private property markets may emerge even without supporting legal institutions. People can trade standard property bundles when they own them.

Communal Apartments

Komulkas are a subset of apartments that have lead to a special loathing across the former Soviet Union. Komulka performance also proves to be a fruitful example to contrast with storefront anticommons behavior. Division of rights in the communal apartments helps introduce the concept of a spatial anticommons, distinct from the legal anticommons discussed so far. In a spatial anticommons, an owner may have a relatively standard bundle of rights, but too little space for ordinary use. By contrast, in a legal anticommons, substandard bundles of rights are allocated to competing owners in a normal amount of space, such as a storefront.

The Property Bundler's Equation

10

Street Kiosks

Appearance of the Kiosks - During the early years of transition, kiosk merchants were also faced with an anticommons. However, by the early 1990s, merchants could acquire informal rights on the streets to set up commercial outlets. Kiosks provided an early solution to the problem of establishing commercial outlets in a country desperately short of retail services. The market for kiosks and storefronts real estate are linked. A rapid increase in number of kiosks in Russia suggests that one path to overcoming a tragedy of the anticommons may be by tolerating informal corruption contracts.

11

Disappearance of the Kiosks - Recently, the Moscow city government has tried to eliminate kiosks from the streets, with mixed results. The apparent reduction in the number of kiosks could be interpreted in two ways that relate to the storefront anticommons: 1. The first interpretation is that the government has successfully specified a better set of property rights in retail storefront space, and that market actors have relied on those rights to shift away from kiosks. 2. The other interpretation is that with the use of sufficient force, the city could enforce existing laws against kiosks and effectively reject the corruption bargains that kiosk owners have made with government officials.
12

What is private property?

Distinction between private property and other property rights depends on these 3 elements: 1. The possibility of full ownership: one owner has full decision-making authority over an object 2. Rights and bundles: the bundle of rights represents all of the infinite number of potential relations (and non-relations) people may have with each over any particular object (Honores standard incidents that make private property - accepted as a starting point for describing core bundles of private property rights) 3. Restriction on extreme decomposition: ...the owner may break up the bundle of property rights without permission of others, but may not decompose the bundle in the ways that overly impair the objects marketability (granting too many privileges of inclusion or rights of exclusion)
13

Anticommons property Frank Michelman (1982) defined the regulatory regime to be a type of property in which everyone always has rights respecting the objects in the regime, and no one is ever privileged to use of them except as particulary authorized by others Dukenminier and Krier: everybody has the right to exclude everybody else, and nobody has the right to include anybody Heller: anticommons property is a property regime in which multiple owners hold formal or informal rights of exclusion in a scarce resource

14

Difference between private and anticommons property An object is held as anticommons property if one owner holds one core right in an object, a second owner hold also a core right in an object etc. There is no hierarchy among these owners or clear rules for conflict resolution Each of these core rights can function / may be used as a right of exclusion Private property breaks up the material world vertically with each owner controlling a core bundle of rights in a single object (allowable form of decomposition), while anticommons property creates horizontal relations among competing owners of rights in an object with an right of exclusion.
15

Private property Vs. Anticommons

1 A

Private property

Anticommons property

Boxes represent familiar objects (stores, appartments) The lines represent the innitial endowments of property rights

16

Tragedy of commons / anticommons

Tragedy of commons: occurs when too many individuals have privileges of use in a scarce resource. Rational individuals, acting separately, may collectively over-consume scarce resource (each finds to benefit by consumption even though this individual imposes larger costs on the community
Tragedy of anticommons: occurs when too many individuals have the rights of exclusion in a scarce resource. Rational individuals, acting separately, may collectively waste the resource by under-consuming it compared with a social optimum

17

Overcoming anticommons tragedy In time, anticommons property will probably be converted to private property, although the process may be brutal and uneven The regulatory mechanisms of goverment interventions do not always insure these results. Reasons: Markets may fail because of transaction costs Goverments may fail because of the cost of compensation, the administrative complexity, and the fear of demoralizing potential investors from uncompensated property rights reforms Some anticommons may make the transition to private property but many are going to fail. The sollution may be comparing anticommons (understanding anticommons as) to a prisoners dillema
18

Overcoming anticommons tragedy- game theory

For simplicity assume: Player A and B have same exclusion rights (veto) and symetrical payoffs Excluding = blocking the other owner from use of the storefront in an exclusive manner (loss of lease, loss of contigent and optional value) Cooperating= tolerating the other owners use or not holding out in a sale to a private property bundler Highest payoff is if one owner cooperates and the other one excludes (starting situation)

B cooperate

exclude

cooperate

5,5 5,5 2,6

6,2

A exclude

2,6 6,2 3,3

3,3

If A und B both exclude, store remains empty and it is wasted from eficciency perspective
19

Rewarding individual cooperation

Goverment increases net payoff by increasing the security of property rights in general (e.g. setup of property registers that provides low cost, transparent identification of owners and their rights) Emergence of real estate brokers
A B cooperate cooperate 7,7 7,7 4,6

exclude
6,4

Property rights more secure > cooperation increases net payoff by 2 > If A rents out the place, then B may be in stronger position if he cooperates (his rights of exclusion can be easily verified in the register) B could also demand a portion of the rent and may suffer less of a loss to his contingent values.

exclude

4,6

3,3 3,3

6,4

20

Rewarding joint cooperation

Again we have an increase in net payoff by 2 due to improvements in enforcement of long-term leases , or the developement of property insurance (this is only the case if both players cooparate and the storefront is converted to private property) Cooperation will be rewarded and exclusion will not generate as much net payoff, as in individual cooperation It represents a Nash Equilibrium : - for both players to cooperate - for both to exclude - or to randomize between the two pure strategies The players may adopt the cooperative Nash Eq. which is in their joint interest, even if they have no way of reaching a binding agreement
A
21

B cooperate 7,7 7,7 2,6

exclude
6,2

exclude

cooperate

2,6 6,2
3,3

3,3

Punishing individual exclusion

Informal sanctions: ostracism and negative gossip in close-knit groups to detect and punish exclusion
cooperate B cooperate 5,5

exclude

Problem: player A and B are most likely not a part of a close-knit groups, or solidary
A

4,2 2,4

5,5

A more promissing path of punishing defection: by devaluing players contingent claims, so they dont attempt to excersise them in political markets

exclude

2,4 4,2 1,1

1,1

The goverment could achive this through a stable property rights regime

22

Punishing joint exclusion

Another policy approach for goverments is to punish joint exclusion In storefronts context this would mean imposing a vacancy tax on each empty storefront that would translate into negative payoff of -2 for each storeowner (this tax is to be imposed only if both exclude and the store stays empty)
B cooperate cooperate 5,5

exclude
2,6 2,6

5,5

A exclude

This is a so called game of chicken with multiple Nash Equilibria and the best strategy for each player is to do the opposite of that what the other player does Players are likely to randomize between strategies with the result that storefronts usually (but not allways) are put to some use
23

2,6 2,6 1,1

1,1

Repeat play
Another possibility for overcoming tragedy of anticommons emerges if the two storeowners must make repeated decisions weather to cooperate or to exclude

Over time cooperative sollutions may evolve and players could adopt strategies such as tit-for-tat in each round players would generate a joint surpluss, that would be partially used for future property registration Cooperative norms and cooperative tendency in repeated games would dominate even without goverment intefering
Problem: Post-social transition may appear to the storeowners more as a one-shot game of musical chairs They expect each round to be the last, so it is unlikely they would practice cooperative strategy (the risk of cooperating today is not to be able to play the game tomorrow)
24

Conclusion

Other questions or discussion points?

26