Property Rights and Social Microeconomics

Natural Resources Journal, Dec 1975

By Alan Randall, Published on 10/01/75

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Property Rights and Social Microeconomics

NA TURA L RESOURCES JOURNAL Property Rights and Social Microeconomics Alan Randall 0 Recommended Citation 0 0 Alan Randall, Property Rights and Social Microeconomics , 15 Nat. Resources J. 729 (1975). Available at: https://digitalrepository.unm.edu/nrj/vol15/iss4/8 15 Nat Resources J. 4 (Symposium on Natural Resource Property Rights) ALAN RANDALL** Economics as a discipline, having its roots in moral philosophy, has been characterized by a continuing inquiry into the relationships among institutions, economic actors, and socioeconomic well-being. This focus has at times been intense among members of some schools of economic thought, while at other times and among other schools it has all but faded away. Currently this continuing inquiry is perhaps most clearly manifested among that growing group of economists who are using an analytical framework which may loosely be called "the property rights approach." These economists, many of whom have been drawn from the fields of micro and welfare economics, are now focusing on an area of inquiry which may usefully be called social microeconomics. They have come to see property rights as a very substantial component of the structure of incentives which guide economic decisions and, hence, perhaps the key to the study of interactions between institutions and resource allocation and income distribution. A rather substantial and rapidly growing body of literature is emerging from the efforts of the property rights scholars. It is the intent of this article briefly and selectively to review this literature, indicating its general thrust and revealing some sharp differences in orientation and emphasis among its various contributors. While there is general agreement that the property rights approach has led to important advances in economic thinking about institutions, there remains substantial disagreement, even among the cognoscenti, when it comes to the generation of normative principles for the design of institutions. NEOCLASSICAL AND INSTITUTIONAL APPROACHES It is useful to consider two longer established streams of economic thought, both of which contributed to the development of the new *This paper (Number 74-1-161) is published with the approval of the Director of the Kentucky Agricultural Experiment Station. Helpful comments were received from Warren Samuels, Eldon D. Smith and participants in the NCRS-2 Workshop on Property Rights. **Associate Professor of Agricultural Economics, Univ. of Kentucky. NA TURA L RESOURCES JOURNA L social microeconomics: neoclassical microeconomics and institutional economics.' Neoclassical microeconomics provided an optimizing framework which, when used with the simple motivational assumptions of profit or utility maximization, allowed prediction of the responses of quantity supplied and demanded to prices, and vice versa. Microeconomics was also useful in prediction of the responses of price and quantity to policy variables such as taxes, tariffs and import quotas. However, it is fair to say that neoclassical microeconomic analysis, for the most part, either abstracted from institutional considerations or optimized within the given institutional framework. Since the primary focus was seldom explicitly on institutional questions, the given institutional framework and institutional alternatives (if considered at all) were often specified naively and incompletely, rather than analyzed. This methodology had the virtue of simplicity, which allowed the analytical progress which can be achieved through the process of abstraction. Yet its simplistic approach to institutions came to be recognized as inadequate for the solution of many policy problems. In response to this lacuna in neoclassical microeconomics an institutionalist school appeared'early in this century. Members of this school were motivated by a deep concern for the importance of institutional-economic interactions. Institutional givens and alternatives were described in excruciating detail. The failure of the institutionalist school to make massive inroads among economic theorists2 may be attributed to its substantial failure to derive useful abstractions. Thus, the institutionalists were more effective in providing a critique of the neoclassical approach than in developing an alternative theory from which to derive testable hypotheses. THE PROPERTY RIGHTS APPROACH The property rights approach to social microeconomics represents a marriage, thus far quite promising, of the neoclassical and institutional approaches. It is by no means an equal marriage; in fact many property rights scholars (PRs) would regard the PR approach as a vastly superior substitute for institutionalist economics. The concern with institutions is retained, as is an understanding of the need to specify the institutional framework with precision. However, the economic methodology employed is wholly consistent with the neo1. The following two paragraphs will do justice to neither the neoclassical (...truncated)


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Alan Randall. Property Rights and Social Microeconomics, Natural Resources Journal, 1975, Volume 15, Issue 4,