Harold Demsetz

Quotes From

“The Exchange and Enforcement of Property Rights” (1964)

• If we assume that it costs nothing to police property rights, it follow that there exists a direct relationship between the degree to which private benefits approach social benefits and the degree to which the conveyed property rights are enforced.#
• There exist no qualitative differences between side effects and what we may call “primary” effects. The only differences are those that are implicitly based on quantitative differences in exchange and police cost.#
• Is not valuation information one of the most important public goods?#
• If we must distinguish among goods, we had best do away with the “public goods” vs. private goods dichotomy and instead classify goods according to whether they are truly free or economic and classify economic goods according to whether marketing costs are too high relative to the benefits of using markets and to the costs of substitute non-market allocation devices.#
• Even though extending the use of an existing bridge to additional persons adds nothing to the direct cost of operating the bridge, there is good reason for charging persons for the right to cross the bridge. Excluding those who do not pay for the use of the bridge allows us to know whether a new bridge is likely to generate more benefit than it is likely to cost.#
• It is, of course, necessary to economize on police cost, so that we will not always want to guarantee full control to the purchaser.#
• A proper definition of a right of action include the degree to which the owner or the community is allowed to enforce the right.#
• [Property rights’] existence is probably due in part to its great practicality in revealing the social values upon which to base solutions to scarcity problems.#
• The value of what is being traded depends crucially on the rights of action over the physical commodity and on how economically these rights are enforced.#
• If we insist wither that all actions (services or commodities) be priced in the market or that the government intervene, we are insisting that we do not economize on the cost of producing exchanges or government services.#
• If [a] service is not bring produced some inequalities (instead of the equalities required for produced goods) among our marginal rates of substitution and marginal rates of transformation may be consistent with efficiency, as will be the case if the cost of taking account of side effects through either the market or the government exceeds the value of realigning resources.#
• The provision of a market (for the side effect [externality]) is itself a valuable and costly service.#

“Information and Efficiency” (1969)

• Moral hazard is a relevant cost of producing insurance; it is not different from the cost that arises from the tendency of men to shirk when their employer is not watching them. And, just as man’s preference for shirking and leisure are costs of production that must be economized, so moral hazard must be economized in shifting and reducing risk. . . . The moral hazard problem is no different than the problem posed by any cost. Some iron ore is left unearthed because it is too costly to bring to the surface. But we do not claim ore mining is inefficient merely because mining is not “complete.” Some risks are left uninsured because the cost of moral hazard is too great and this may mean that self-insurance is economic.#

“Toward a Theory of Property Rights” (1967)

• Property rights are an instrument of society and derive their significance from the fact that they help a man form those expectations which he can reasonably hold in his dealings with others.#
• What converts a harmful or beneficial effect into an externality is that the cost of bringing the effect to bear on the decisions of one or more of the interacting parties is too high to make it worthwhile.#Quoted in Tom Palmer, “The Hermeneutical View of Freedom” (1990)
• An increase in the number of owners is an increase in the communality of property and leads, generally, to an increase in the cost of internalizing.#
• The emergence of property rights can be understood best by their association with the emergence of new or different beneficial and harmful effects.#