Spontaneous Emergence of Property Rights in the Classroom

Last week I posted about Bart Wilson’s talk on his new book “The Property Species” and promised to share a class demonstration about the emergence of property rights in the classroom. But first let me tell you why I did this demonstration.

When I was a student I hated assignments that go through the motions of learning, but provide no learing. Building a paper maché volcano, while fun for some, teaches little about volcanic eruptions. Shaking and opening a soda bottle (pop?) is more instructive: it’s the fall in pressure as the bottle is opened that leads to the rapid release of the gas disolved in the liquid, the same thing happens to magma. And while being able to algebraically solve for the equilibrium price given supply and demand functions is a very necessary evil (to a point), it teaches little about the process of competition and price formation.

This is why I was reluctant to having my first Intro to Economics class write their own version of “I pencil”, quite a few years ago. Driving the point of how largely anonymous exchange and specialization, coordinated peacefully through property, prices, and profits and loss makes the modern world possible is very important. But how much can you really learn about this by watching and transcribing an episode of “How It’s Made”? For most students, not much at all. Partly in dread of reading and grading 80 versions of “I whiteboard marker”, or “I toothbrush”, and partly following my conscience I decided to throw in a twist.

The twist may seem evil and arbitrary at first. Students still had to choose a good and write their own version of “I _____” , but if two students wrote about the same good I would divide their grade by 2. If three students wrote about the same good I would divide their grade by 3 and so on. I did not give any additional prompts about how they should sort out potential conflicts or coordinate amongst themselves. These were just the rules of the assignment.

Without this seemingly arbitrary grading rule, goods to write about were not scarce. By changing the grading rules, goods to write about became scarce. While there are many more goods to write about than students, certain goods stand out in the mind, and extra effort must be devoted in thinking up a new good, and finding out if someone had already looked around their room and chosen the same good. Now students also had to coordinate amongst themselves or run the risk of a fairly severe penalty to their grade.

As expected, I have never had to enforce the the harsh grading penalties (anecdotal, I know). Students always find a way to coordinate and establish property rights over suddenly scarce goods. The point of the assignment was no longer about I pencil, but about the emergence of property rights and social coordination (and hopefully a little bit about I pencil as well). I didn’t act as a central authority that imposed and enforced property rights. I merely changed the incentives and constraints, hoping that the costs of coordinating and setting up agreements was smaller than the costs of not doing this.

When they turned in their assignment, we discussed how they had actually coordinated. Over the years I have seen multiple ingenious mechanisms. From class forums using the university platform, to a simple spreadsheet circulated amongst the students via email or WhatsApp. In the good old times before the pandemic they would sometimes meet after class and sort it out in person. Sometimes they created a common pool of goods and one of their classmates is chosen to distribute them among their peers. Leaders emerge to fill various roles from dispute resolution to registering claims. How this person is chosen also varies from class to class. Some students volunteer, others have it thrust upon themselves. The use of a homesteading rule is fairly common, first to choose gets the good in cases where there are multiple claims. In class we discuss why they use this rule, rather than last to choose gets the good, and the problems this alternative would entail.

I have only had one instance of a strong and contested dispute among “property owners”. That semester students had to not only write but present their work. Two groups (that semester “I _____” was a group assignment) wanted to do a good they thought would be amusing to present in class. I’ll leave it up to your imagination what good students in their late teens and early twenties might find to be amusing to present in class. The two groups of students underwent a rather complicated dispute resolution system with the rest of the class playing the role of arbiters of the multiple claims to the same good. Neither group wanted to budge, but one group ended up ceding the rights in the end.

What I like about this little classroom demonstration is that it makes it easier to teach the emergence of institutions as the products of human action but not human design. Order without design is a difficult concept to grasp, but maybe even more importantly it is a concept that is difficult to accept. But after this demonstration, not anymore, students experience the emergence of property rights. An added bonus is that in this case scarcity is clearly a product of the relation between their minds and how they relate to the world, not about objective quantities of goods.

Property rights emerge through their coordination but are not centrally imposed. They coordinate because a change in the environment turned a previously free good, the subject of their short “I ____” essay, into a scarce (economic) good. As you can probably tell Harold Demsetz is one of my favorite economists of all time. After the barrier of disbelief is breached, we can easily talk about the spontaneous emergence of money, cover a little about how property rights emerged in whaling on the high seas, and the spontaneous origin of law (very useful for future law students usually educated in the positivist tradition, as is the norm in Ecuador).

I later learned of the fish game (I am not an experimentalist). But, no disrespect intended, it seems a little contrived. I still like my assignment better. While the goldfish game teaches the tragedy of the commons, the “I _____” assignment teaches how the tragedy can be solved without a centralized authority by having students solve if for themselves and come to grips with the real limitations and problems they faced, albeit on a much smaller scale. I am still hoping for an experimentalist that thinks something serious can be made out of my little classroom demonstration.

Bullfighting with cars and economic development

In Ecuador we bullfight with cars, literally. It’s not a game, its the name we give to the strategy we use when we cross the street. As in a bullfight, you stand on the edge of the curb, waiting for the car/bull to pass and then run behind the passing car to succesfully cross the street.

This is true no matter what the right of way legislation says (pedestrians have the right of way, de jure, in Ecuador as elsewhere), and as such is a very useful example to teach the difference between law and legistlation when talking about institutions. Although the actual phrase has fallen out of fashion lately, along with the falling popularity of bullfights (cue nostalgic music for dying traditions), the strategy remains as strong as ever.

Both pedestrians and drivers are familiar enough with the strategy that it is not uncommon to see pedestrians motioning angrily at the innocent driver that stops at a crosswalk, usually a foreigner, so that the car can pass and they can safely cross the street. Drivers speed up at crosswalks where people are waiting to cross, not in attempt to run them over, but as a courtesy, so as to get out of pedestrian’s way faster (at least many people I’ve talked to have shamefully confessed that is why they do this!). When a driver does stop at a crosswalk to give the people on the sidewalk the right of way there is a marked delay and drivers and pedestrians are incovenienced by the delay.

From conversations I have had with people from other developing nations, the strategy used by drivers and pedestrians to cross the street is nearly identical to bullfighting with cars we use in Ecuador. Although it’s not the best possible strategy for coordinating street crossing, it is an effective strategy that allows for social coordination since everyone knows that game that is being played. It is an institution of the developing world.

Moving to the US for my undergraduate degree, many years ago, I packed this institutional baggage along with me, which led me to be late for the first class of the semester. When I arrived at the crosswalk in front of a big red brick building in Boston’s suburbs, a car pulled up to the stop sign and stopped. My mind was lost thinking about what college in the US would be like, as I patiently waited at the edge of the curb for the car to pass so that I could bullfight the car to cross the street. A sudden honk of the horn startled me as I looked around to see an angry driver waving for me to cross the street. Partly because I was startled, but also because I was used to bullfighting with cars, instead of jumping out immediatly to cross, my feet began to do an akward one-step-forward one-step-back shuffle. It wasn’t until I made eye contact with the now exasperated driver, that I was confident enough I wouldn’t be run over to gathered my courage, break out of my developing-country meet developed-country shuffle, and finally cross the street.

Talking to a classmate from Central America later that day, he told me that he was all too familiar with what had happened to me, and with the one-step-forward one-step-back shuffle being discovered by tourists, immigrants, and foreing students all over the developing world. Many years later I have informally confirmed the shuffle still exists in conversations with students that have traveled abroad to the US and Europe.

When I tell this story in class, the question of how to switch to the obviously superior institutions of the US and Europe for street crossing, where pedestrians have the right of way, de jure and de facto always comes up. For institutional change to succeed without pedestrian bloodshed, the new institution would need to become common knowledge rather quickly. In more technical language, bullfighting with cars is the equilibrium now in the developing world, and we know a better equilibrium exists, but the path to the new equilibrium is difficult to traverse.

When I ask what students would do to change to this superior equilibrium, the most common first response is very economic in orientation. Increase monitoring and impose larger fines they say. But given the costs of these policies in an already poor and corrupt institutional environment, I doubt this is necesarily the path to superior institutions, for street crossing or anything else. This is especially true when we consider the relative cost effectiveness of changing this institution vs. other potential institutional investments in the developing world.

I also doubt that larger fines and increased monitoring are the main reasons that superior institutions for street crossing have emerged in the developed world. I have rarely seen police monitoring crosswalks (with the excpetion of school crossings) in the US and Europe, and while fear of punishment is definately an important influence, I don’t know how heavily the expectation of punishment weighs on the minds of drivers in developed countries.

Institutions are important for development but we know very little about how to change them. More thoughtfull students also suggest that a superior institutional arrangement could be reached by convincing people to change their perceived payoffs of playing different strategies. The hard and long process of social entrepreneurship, seems more effective and conducive to robust success.