Bargaining without property rights?

The fifth subsection of Chapter 4 (pp. 63-65) returns to the first of Nozick’s two theoretical questions (p. 63): “why not allow any boundary crossings provided full compensation is paid?” (Nozick will revisit his second question, “why not prohibit?”, later in the chapter.) Here, Nozick identifies two potential problems with such a permissive or compensation-based system of enforcing rights. One problem is that property rights would not be secure or stable, for in the words of Nozick (p. 64), “Anyone [could] seize a good, thereby coming to ‘own’ it, provided he compensates its owner. If several people want [the same] good, the first to seize it gets it, until another takes it, paying him full compensation.” (An economist, however, might be puzzled by this objection, since goods under such a permissive system would end up gravitating towards their highest-value uses! This simple economic argument, of course, is bullshit, since it ignores a person’s ex ante incentive to make goods in the first place!)

The other major objection to a compensation-based system of enforcing rights is the same one we mentioned at the end of our previous blog post: how in God’s name would we calculate the amount of compensation owed to the victim of a moral boundary crossing? According to Nozick (p. 65), the best solution to this problem is “market compensation.” That is, “the compensation paid for a [moral] border crossing [should be equal to] that price that would have been arrived at had prior negotiation for permission taken place.” But as Nozick himself notes (p. 65), unless we really allow such negotiations between the wrongdoer and the victim to actually take place, there is no reliable way of discovering what this market price might be. We would only add that — in the absence of a Nash bargaining solution in which the parties are able to reveal their outside options in a credible and verifiable way and then agree to split the difference –, strategic bargaining behavior between the two parties might prevent them from reaching any deal in the first place, a result known to anyone who is familiar with game theory. Furthermore, putting aside the problem of strategic behavior, we would add one more point (a point we owe to our colleague and friend Terry Anderson): how can any negotiations take place in the absence of well-defined property rights in the first place?

In any case, Nozick will present the strongest critique yet of permissive or compensation-based systems of enforcing rights in the next subsection of Chapter 4 (pp. 65-71): the problem of fear. Stay tuned; we will review that subsection in our next blog post …

Image result for strategic bargaining

Credit: Rohitanshu Kar

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One Response to Bargaining without property rights?

  1. Pingback: A transaction cost view of moral boundary crossings | prior probability

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