Environmental Property Rights

1
Environmental Property Rights

• Anderson, T.L. McChesny Raid or Trade? An
  Economic Model of Indian-White Relations,
  Journal of Law and Economics, Vol. 37 (1), pp39-74

2
Research Questions

• This paper explains property rights in America
  from an economic perspective.
• Examines history of Indian-White relations in the
  USA, in terms of the allocation of resources
  (particularly land).
• Analogy between the evolution of property rights
  and potential litigants decision to settle or go
  to trial.
• The paper presents theory and evidence of
  relations evolving over a period of time from
  relative peace (with contracts for property
  rights) to a period of violent conquest.

3
Economic Model of Negotiation versus Taking

• Evolved from two main strands of literature
• (a) the choice between contact and violence
  (Umbeck, 1981) . Basically distribution of rights
  are stable if people respect them or as long as
  those who do not agree can be excluded.
• (b) Settlement-Litigation ModelsDecisions either
  to settle or litigate also provide a useful
  framework of whether or not to go to war. 4
  stages have been identified- harm, assertion of
  claims, bargaining (and maybe settlement) and
  litigation (where no settlement occurs).

4
Economic Model of Negotiation

• (a) Harm refers to violations of property rights
  of one group by another. European settlers
  claims were traced to charters granted by their
  respective sovereigns (though most grantees were
  more inclined to settle permanently without
  negotiating with Indians), while Indians simply
  regarded whites as trespassers with no rights to
  the land they claimed. Sets up the stage for
  asserting claims

5
Economic Model of Negotiation versus Taking

• (b) Assertion of claimsTwo things determined
  whether or not Indians asserted claims to the
  land (i) whether there is an expected loss from
  continued trespass - dependent on value of
  resource and the cost of asserting the claim by
  negotiating or fighting (ii) the ability and
  credibility to fight is a requirement for
  asserting a claim. Hence there can be no
  contract if one side can simply take what it
  wants at very little cost.

6
Economic Model of Negotiation versus Taking

• When both Indian and Whites possess the
  credibility to fight, negotiations take place.

Figure 1
Value in
MBI
MBW
MCW
MCI
0
LAND
L2
L1
L0
LMAX
7
Economic Model of Negotiation

• Importance of Figure 1 is that there are zones
  delimiting different decisions about asserting a
  claim and these zones depend on each sides MB
  and MC.
• As long as marginal costs rise and eventually
  exceed the value of land, there will always be
  areas where it is not worth defending (for
  Indians) or taking (for whites). Indians will not
  expend military resources for region 0-L1, while
  whites will not fight beyond L2. However, between
  L1 and L2 controversy will arise it is worth the
  Indians while to defend and the worth the
  whites while to negotiate or take. Hence a
  contract or war will ensue, depending on the
  credible force at the disposal of each.

8
Raid or Trade

• In the zone of controversy parties chose whether
  to fight or bargain in order to reach a solution.
  The interest of the two parties diverge on how to
  share the surplus but converge with respect to an
  efficient solution.
• Under certain assumptions (full and accurate
  information?) conflict will always be resolved
  through negotiation since warfare imposes
  deadweight loses. Still perfect information may
  not be necessary to avoid warfare-- Indians may
  simply assert a claim after trespass by whites
  and the dispute can peacefully be negotiated. A
  surplus which can be shared for both claimants
  is necessary for choosing negotiation rather than
  fighting.

9
Raid or Trade

• For Indians SICFI-GFI-CNIgt0
• Where SI is surplus from negotiation CFI is
  costs of fightingGFI value of land gained from
  fightingCNI is cost of negotiating a peaceful
  solution
• Ceteris paribus, as CFI rises, SI rises as GFI
  or CNI rise SI falls.
• Same situation applies to whites SwCFw-LFw-CNwgt0
• SSISw gt 0. This is the sufficiency condition
  for negotiation

10
Raid or Trade

• SSISw lt 0 is the sufficiency condition for
  fighting is the absence of a surplus from
  negotiation.
• S(CFICFW) -(CNICNW) (GFI-LFW).
• Letting CFICFW CF and CNICNWCN, if the value
  of disputed territory is the same for whites as
  for Indians i.e. GFILFW, then SCF - CN lt0 is
  the sufficiency condition for fighting.
• Hence S is the difference CF and CN. If CF is
  always ve and CN is always 0, then the
  sufficient conditions for fighting will never be
  met (Umbeck, 1981)

11
Raid or Trade

• When uncertainty is introduced into the model,
  the sufficient conditions for fighting may be met
• Conditions for fighting are mainly (a)
  Information asymmetry, (b) transaction costs, (c)
  collective bargaining and public choice.
• Information asymmetry includes Indians not
  knowing the efficiency of whites weapons
  (repeating rifles, machine guns etc.).
• Still negotiation seems to be the rule and
  fighting the exception in empirical literature
  (out of 10 disputes, only 1 eventually goes to
  court)

12
Raid or Trade

• Transaction costs.
• Language and customs barriers can be an obstacle
  to negotiations (particularly sophistication with
  English and written contracts). Many Indian
  chiefs did not fully understand the treaties
  they had signed.
• Property rights impediments. Despite the
  willingness of the immigrants to purchase there
  may well have not been anyone conclusively from
  whom to buy (e.g. nomadic tribes or where more
  than one tribe used the same resources). Hence
  negotiation costs rise.

13
Raid or Trade

• Collective Action and Public Choice. The analogy
  between litigation and treaties is imprecise.
  While settlement of a contract makes all parties
  better off and litigation leaves them worse off
  the same may not be the same of a treaties and
  warfare.
• Treaties often create a Prisoners Dilemma
  situation. Even if the total benefit of a treaty
  exceed its costs, certain parties may find it in
  their interests to defect from the agreement.
  There is an agency problem (a monarch may agree
  on behalf of the people without their consent
  something that imposes costs on them. This
  reduces negotiation surplus and increases the
  likelihood of war.

14
Raid or Trade

• Coalition costs. The cost of negotiating and cost
  war depend on relative costs of required td trade
  or to raid. The costs of negotiation usually
  includes the costs of handful of skilled
  negotiators while the cost of war is borne
  through a much larger number of individuals
  numbering into thousands or millions-- a
  part-time militia or a standing national army.
  The fixed costs of a standing national army (as
  opposed to that of a group of negotiators is very
  large) but lowers the marginal costs thereof such
  the likelihood of war also increases.

15
Raid or Trade

• Incidence of fighting costs. The decision to go
  to war (or negotiate) is usually made by
  government officials and tribal leaders. Just as
  dispute resolution though the courts is a
  negative sum gain forced onto collective choice
  by an impartial jury, so is war forced onto the
  public by politicians and bureaucrats (including
  military personnel). These usually do not
  individually bear the relevant costs (they
  usually shift the costs, though, onto others and
  in the process undervaluing CF). For top military
  officers (and bureaucrats) also observe that
  warfare increases budgets, potential distinctions
  in battle etc.

16
Empirical Evidence

• The economic model is corroborated in the early
  period of colonisation.
• The US government bought land only when the
  Indians were prepared to sell (though the US
  government was a monopsony)
• Evidence that in the first days (1620s) Indians
  were prepared to accede to whites assertion of
  claims to land. e.g. Apparently the Pemaquid
  tribe gave 12,000 acres to English colonialists.
  In fact, until the Mexican War in 1840s, it was
  not worth the Indians while to stop trespassing
  by whites, reprehensible though some whites
  behaviours may have been.
• Avoidance of zone of controversy by relocating
  Indians to reservations (initiated by President
  Jackson).

17
Empirical Evidence

• Trading dominated raiding in the history of
  Indian- whites relations.
• Most of the trespassing in the late 18th and
  early 19th centuries was to expel white
  intruders.

18
Year Number of battles Number of treaties
1790-99 7 10
1800-09 0 30
1810-19 33 35
1820-29 1 51
1830-39 63 84
1840-49 53 18
1850-59 190 58
1860-69 786 61
1870-79 530 0
1880-89 131 0
1890-97 13 0
19

• Information Asymmetry
• Both sides realised the importance of the other
  side possessing accurate information about them
  (whites shipped some Indians back to Europe to
  impress them with extent of white technology,
  population and culture) and frequently peacefully
  demonstrated their technology to impress the
  Indians with pointlessness of war.
• Information asymmetries increased as the
  frontiers pushed westwards and for several
  reasons. Many tribes were nomadic and, therefore,
  information did not always filter to down to
  them. On the whites front different landscapes
  and climate resulted in different Indian warfare
  tactics and also poor information about who,
  precisely, was hostile.

20

• Changing technology resulted in Indians being
  unduly optimistic about winning (information
  about new technology being unavailable). Not
  always the case (as Custers troops were to
  discover to their cost). Also the Indians were
  superior horseman.
• The key was not so much the superiority of one
  sides technology but whether that technological
  changes were unknown or underestimated. In 1867
  at the Wagon Box Fight, the Sioux lost over 1137
  men leading one of their chiefs to infer, from
  the use of new rifles, the use of a supernatural
  power by the immigrants.

21

• When whites met tribes with well-defined and
  divestible property rights, they tended to trade
  since the costs of negotiation fall.
  Alternatively, they would raid when they met
  those without well-defined rights.
• As the zone of controversy shifted westwards,
  growing Indian-white violence could be traced to
  agency costs which made negotiated outcomes
  unenforceable (most violations of treaties were
  not by leaders of the US government or of the
  tribes) but by groups who could only be
  controlled at high costs.

22

• Standing army versus a militia. Throughout the
  19th century, whites substituted full-time
  professional soldiers for local militias, with
  garrisons and forts. This increased the number of
  battles as the incentive to fight (as opposed to
  negotiate) rises with the decline in marginal
  costs of fighting.
• A standing army meant full-time officers,
  bureaucrats whose careers and budgets could only
  be advanced by fighting
• The number of battles with Indians rose with the
  size of the standing army. In 1845 the army
  consisted of 8 509 officers and men. In 1846-48
  (the onset of the Mexican War), this rose to 47
  319. By 1860, it had fallen down to 16 000, but
  rose again during the Civil War to 1 million men
  (the Union Army).

23
Years Mean Annual Battles
A 1841-45 2.8
1849-54 8.4
B 1856-60 31.6
1865-69 110.4

• The means are significantly different at 0.01
• The means are significantly different at 0.01

24

• Regression models were used to test the effect of
  the Mexican and Civil Wars on Indian Battles
  (1790-1897).
• The effect of the Mexican War was a discontinuous
  increase of some 12 battles and that of the Civil
  War some 25 battles per year.
• The effect of a growing army was also tested and
  was found to have a significant and positive
  impact on the number of battles.

25
Final Conclusion

• Economic analysis (costs and benefits) helps to
  explain the evolution from negotiation to warfare
  in resolving disputes between Indians and whites,
  rather than glib references to changes in
  ideology.
• This episode of American history demonstrates the
  importance of property rights. Well-defined and
  divestible property rights are amenable to
  disputes being resolved through negotiation while
  their absence normally leads to warfare.
• It was only through the substitution of a
  standing army for a local militia that war rather
  than negotiation became cheaper.