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 paperexplains 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 resourceand 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 side’s 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 Indian’s 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 SI=CFI-GFI-CNI>0 • 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 Sw=CFw-LFw-CNw>0 • S=SI+Sw > 0. This is the sufficiency condition for negotiation

10. Raid or Trade • S=SI+Sw < 0 is the sufficiency condition for fighting is the absence of a surplus from negotiation. • S=(CFI+CFW) -(CNI+CNW) + (GFI-LFW). • Letting CFI+CFW= CF and CNI+CNW=CN, if the value of disputed territory is the same for whites as for Indians i.e. GFI=LFW, then S=CF - CN <0 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 Prisoner’s 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.

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 Custer’s troops were to discover to their cost). Also the Indians were superior horseman. The key was not so much the superiority of one side’s 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. *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.