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«Emergence of Endogenous Legal Institutions: Property Rights and Community Governance in the Italian Alps MARCO CASARI This article examines changes ...»

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Vigolo Vattaro, 1496, c. 28, “Item se statuisse et ordina che niuna persona de qual se voglia conditione,…, non debbia pascolare in su i communi da Vigolo con bestie quale non puossi invernar, tener et sostentar l’inverno con il feno di suoi prati, oltra tre dí: sotto pena de lire tre per ciascun dí che contrafará” Similarly in Comun Comunale, 1544. Mortaso, 1558 had a more relaxed rule but in the same spirit (maximum ten extra sheep, four extra goats, and two extra cows). Communities with a particularly large pasture endowment or in exceptionally good years, rented out grazing rights to other communities. The format to quote a charter is [community],[year],[article]. Unless otherwise noted, the charter was published in Giacomoni, Carte di regola.

Emergence 197 To make sure rules were enforced, villagers appointed officials to police the land and eventually impose cash fines in case violations occurred.

A charter might be seen as an agreement between a community and the Prince in order for the community to freely administer local justice on economic matters. Rural charters exhibit all the features of official deeds.

A notary recorded in a written document the will of a group of people in the presence of external witnesses and, sometimes, of a representatives of the feudal powers. To be effective, every charter needed to be confirmed by the Prince or, in some cases, by its feudal lord. Through this confirmation, the Prince stated the compatibility between the charter and the laws in force and promised to enforce the rules contained in the charter against resistant violators, on a community request.15 The central institution in the community organization was the general assembly (regola), which appointed officials in charge of the daily administration, most importantly the governor (regolano). The governor had a one-year appointment and was in charge of the enforcement of the rules for the community and for the Prince. There were various other posts to assist him. The guards (saltari) patrolled the community land to detect potential violators of the rules, some took care of the land near the village, some took care of the forest and the high mountain land. A distinct role fell to the herdsman, who was chosen to handle the summer grazing activity, which was often organized collectively. In some cases, a few designated people were in charge of estimating damages that needed to be refunded (stimadori). There were variations from community to community in the number and type of officers.

GOVERNANCE REGIMES

There were five property rights arrangements, or governance regimes, that are relevant for the analysis of the Trentino case. At one extreme there is open access and at the opposite extreme there is private property. This study will focus on the “in-between” governance regimes— communal property with state enforcement, communal property with informal enforcement, and communal property with private-order governance—which can avoid the worst effects of the tragedy of the commons and in same cases may deliver optimal outcomes.16 A community could tailor its own rules and apply them to its members and to outsiders using particularly simplified enforcement procedures. The Prince maintained control over the content of the charters and occasionally censored it. Every new Prince had to approve again the old charters in order for them to be effective. For a discussion of cases of some specific villages see Nequirito, Le carte de regola.

Ostrom, “Coping with Tragedies”; Gibson et al., People; and Stevenson, Common Property Economics.

Casari Open Access When a natural resource such as a forest or a pasture is available for everyone to use (open access), there is complete dissipation of any rent for the users.17 This result of heavy resource overexploitation is known as the tragedy of the commons.

Private Property Unlike an underground oil reserve or a fishery, the common land could technically be divided into individual plots. A single owner would have the correct incentive to harvest the resource optimally when all others were excluded from using it. To achieve this outcome, what matters is not the legal entitlement to the resource but the effective exclusion of others.18

Communal Property with State Enforcement

This regime is the textbook example of the commons.19 Only a welldefined group of agents can harvest the commons (insiders) and, in contrast with the open access regime, all others are excluded from its use (outsiders). The enforcement against outsiders is done through the state.

The insiders do not have any internal structure of governance; they compete with one another for resource appropriation, which results in an overuse of the resource, although less severe than in the open access regime. Notice that in the simple case of identical agents, increasing the number of insiders always decreases group efficiency in the use of the commons. In the absence of internal governance rules, insiders’ competition for resource appropriation increases and in the extreme case of a very large group of insiders, efficiency approximates the level of the open access regime.

Communal Property with Informal Enforcement

Multiple owners share the resource and enforce property rights informally without the intervention of the state. As in communal property with state enforcement, insiders do not have any internal structure of governance. When insiders are engaged in a long-term interaction and are sufficiently patient, they may be able to harvest the resource optiGordon, “Economic Theory.” Barzel, “Property Rights.” Clark, Mathematical Bioeconomics.





Emergence 199 mally. Cooperation may be sustained because an individual deviation from a target level of resource use could be punished by the others in future interactions. Even if there is a short-run incentive to deviate, repetition can make it in the best interest of each to follow the target harvesting level. The necessary conditions for this result are formally listed in the folk theorem, which applies to a variety of situations, including common resource appropriation, under the condition that participants interact repeatedly and do so infinitely into the future.20 There are three potential problems with this regime. First, with informal enforcement, many levels of cooperation may be sustainable, not just one. The folk theorem clearly states that anything from no cooperation to full cooperation on the optimal harvesting policy could be possible equilibria. To avoid the tragedy of the commons, the resource users must coordinate on a specific target and on a specific punishment strategy. Miscoordination on either one may easily lead to the unraveling of cooperation.21 The second problem is that the less a user is able to monitor others, the less likely she is to detect an overuse of the resource by others. One can show that the efficiency of informal enforcement is related to how perfectly insiders are able to monitor the harvesting actions of other users.22 When a user cannot accurately detect cheating, sometimes she believes that cheating has taken place when it was not the case. In those instances, the optimal strategy for the user is to punish even if there is some doubt that anyone cheated, which lowers efficiency. Without such punishment strategy, cooperation cannot be supported. In a historical context, Karen Clay dealt with the institutional implications of such imperfect monitoring.23 For efficiency of informal enforcement we refer to the efficiency of the most efficient outcome sustainable under that arrangement. As noted, the folk theorem does not predict a single outcome but a range of possible outcomes. To define efficiency we consider only the best sustainable outcome or the “informal cooperation solution.” Although standard in cartel studies, these considerations have Friedman, “Non-Cooperative Equilibrium.” The folk theorems apply also to situations of indefinitely repeated interaction, where agents ignore the exact number of repetitions because after each period there is a always a positive probability of another period of interaction.

Kandori, “Use.” In a more recent case among firms, setting up the lysine cartel among five corporations during 1993–1995 involved 25 multiparty price-fixing meetings at the top level;

dozens of supplementary bilateral meetings by regional sales managers and hundreds of telephone calls. The U.S. Federal Trade Commission secretly videotaped some of these meetings (Connor, “Global Cartels”).

Abreu, Pearce, and Stacchetti, “Toward a Theory”; and Fudenberg, Levin, and Maskin, “Folk Theorem.” Clay, “Trade”; and Greif, Institutions, chapter 10.

Casari rarely been applied to common property resource use.24 In essence, there is a problem because the higher the uncertainty about the harvesting done by other users, the less efficient is the informal cooperation solution.

The third problem is that trespassing from outsiders increases the uncertainty about the harvesting level of insiders. In a completely isolated community, everyone knows that any harvesting going on was carried out by insiders even when there is uncertainty as to which person actually did it. Such inference is more difficult when trespassing is possible.25 After observing overexploitation of the resource, a user may engage in the punishment of insiders when the deviation from the target was actually due to an outsider. In conclusion, the possibility of trespassing reduces the efficiency of the informal cooperation solution.

Communal Property with Private-Order Governance

Insiders internally negotiate a set of rules to manage the common resource and have them approved or at least tolerated by the higher political authority. These rules concern levels and modality of harvest as well as enforcement procedures. Daniel Bromley presents several casestudies of fisheries, pastures, and water resources managed under this regime.26 Elinor Ostrom summarizes the features shared by privateorder institutions that were long-enduring.27 On one hand, private-order governance entails costs both for setting-up and for administering it. On the other hand, it may bring three types of improvements over communal property with informal enforcement.

First, private-order governance can lead to superior information about resource appropriation in at least two ways. One obvious way is to gather additional information by actively monitoring users. This activity is costly, but could enable insiders to achieve higher levels of efficiency by reducing the uncertainty in the knowledge of the actions taken by others.28 Without an explicit organization for providing this public good, however, it may be difficult to put enough effort into monitoring.

Another way to improve information conditions is for the organization to collect voluntarily supplied pieces of private information about the actions of others and place them in a public registry. When we go from For an application to fisheries, see Laukkanen, “Cooperative and Non-Cooperative Harvesting.” Baland and Platteau, Halting Degradation.

Bromley, Making the Commons Work.

Ostrom, Governing the Commons.

Abreu, Pearce, and Stacchetti, “Toward a Theory”; and Fudenberg, Levin, and Maskin, “Folk Theorem.” Emergence 201 small groups into larger social structures, the assumption that everyone can observe everyone else may cease to hold, and cooperation may quickly break down.29 With a public registry, instead, cooperation may be sustained also in very large groups. An example from the Middle Age is provided by Paul Milgrom, Douglass North, and Barry Weingast.30 They describe a public registry that kept a list of merchants who did not honor their contract obligations and was accessible to all merchant in the guild. This institution provided stronger incentives to merchant to behave honestly.

Second, a private-order institution can introduce more efficient punishment technologies toward insiders. When information is less than perfect, informal enforcement entails some degree of punishment in equilibrium.31 Informal punishment may involve a general, although temporary, suspension of cooperation among all insiders and, as such, it is always a deadweight loss for society. Consider firms in a Cournot oligopoly, which are in a collusive agreement but where the production of competing firms is known with uncertainty. Dilip Abreu, David Pearce, and Ennio Stacchetti prove the optimality for firms to engage periodically in “price wars.”32 Cutting prices generates an unrecoverable loss of profits for the colluding firms. Private-order governance can introduce legal-type punishment for the villagers in the form of monetary sanctions, which do not destroy wealth but simply transfer it.33 Third, private order governance may create a more effective enforcement toward outsiders. Informal punishment of outsiders is more problematic than the punishment of insiders. Trespassing outsiders may be either neighbors or strangers. When dealing with a stranger, a legaltype punishment has a clear advantage because informal punishment is ineffective. With neighbors, the interaction is repeated although the monitoring problems may be so severe that state enforcement is preferable to an informal cooperation solution. For instance the victimized community may observe a person trespassing, while the trespasser’s community may be unaware of it. A retaliatory harvesting raid in the trespasser’s community territory will be interpreted as a first action of trespassing, which, in turn, deserves punishment. If such instances are frequent, this will induce continuous “wars” among neighboring comMyerson, Game Theory, pp. 349–52.

Milgrom et al., “Role.” When information is perfect, nobody in equilibrium ever defects from the cooperative agreement; hence, there is no punishment. In that case, as long as the punishment threat is credible, the specific punishment technology adopted is irrelevant.

Abreu, Pearce, and Stacchetti, “Toward a Theory.” As Dixit, Lawlessness; and Haddock, Threat, illustrate, property rights can also be protected with private violence but such enforcement could generate heavy deadweight costs for a society.

Casari munities. For external enforcement, a community may profit from replacing an informal mechanism with a legal mechanism.34

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