John Umbeck

The California gold rush: A study of emerging property rights

For over 2000 years political philosophers, historians, anthropologists, and sociologists have sought an explanation for the emergence of private property rights (I). More recently, economists have joined in the search (2). This paper was written to present some of my own ideas on the subject, ideas which hopefully the reader will regard as an advance in our understanding of a complex subject. The concept of property rights is not an easy one to define unambiguously. The key to understanding it is probably to be found in the notion of exclusivity. For an individual or group of individuals to claim a right to some property they must first be able to exclude all other potential claimants. With the competition excluded, the individual can then decide how the property will be used and who shall get the income derived from it. Of less importance, but generally included in the concept of property right, is the notion of transferability. This means that the owner of the exclusive rights can transfer them to someone else in exchange for the exclusive rights to other property. Of course, the right to exclude must precede the right to transfer, because without the former there would be nothing to transfer. Still, what does it mean to have a right? The right to use a property, to derive income from it, and to exchange it all refer to future events, and future events are uncertain. Therefore, to say that an individual has a right is to say that he has some expectation that his decision regarding the use of some property is in fact how it will actually be used. In order to render this definition operational it is necessary to identify some observable variable to serve as a proxy for expectations. The one I have chosen is an explicit contract (3). In this contract, two or

The Effects of Different Contractual Arrangements: The Case of Retail Gasoline Markets

The change in the contractual arrangement at a gasoline station from a refiner-controlled to a franchise operation implies different incentives for the individual who sets prices and determines hours, but reflects no change in the product nor the market environment. The outcome can lead to higher prices and reduced hours at the station affected. The divorcement experience in Maryland illustrates how change can be imposed by the legal system. Average self-service and full-serve prices rose, and hours of operation fell relative to those of competitors even though refiner operations that were forced to franchise had previously had prices below the competition. The evidence of an effect on the prices and hours of competitors is less convincing. 16 references, 2 tables.

A Theory of Contract Choice and the California Gold Rush

EVERY time an exchange takes place between two or more people there is a contract, either explicit or implicit. These contracts can take a variety of forms which are subject to the discretion of the contracting parties. The purpose of this paper is to examine the nature of contract choice by employing the tools of price theory. In particular (using a model developed by Cheung1), I will try to explain the choice of contracts observed among gold miners during the California gold rush of 1848-1850. In his 1969 article, Cheung developed one of the first theories of contract choice. The basic proposition set forth in his paper is that individuals, in choosing between a fixed rent or a sharing contract, will select the one which minimizes risk (defined here as the variance in income), but their choice is subject to the constraint of positive transaction costs. While I will use the same methodology as Cheung and, indeed, the same theoretical proposition, there are at least three significant differences which will require modifications of the analysis. First, Cheungs model explicitly assumes that property rights to all the factors of production are clearly delineated. However, as I will show later, this assumption cannot be used when examining contract choice in the California gold fields. Because the mineral lands were a nonexclusive resource, the theory must take into account the additional costs of privately maintaining exclusive rights. Second, Cheungs model was constructed to explain contract choice in agriculture, and so his discussion emphasized the problems in contracting in this particular industry. Yet, his theory suggests that the costs of contracting will be a function of both the production technology and the nature of the product itself. Therefore, a careful examination of the characteristics of gold and the

Consumer and Competitor Reactions: Evidence from a Field Experiment

In response to a price change by a single seller, it is common for the density of sellers in the market to influence both the quantity response of consumers and the price response of other sellers. Using field experiment data collected around a series of exogenously imposed price changes we find that an individual retailer with a larger number of competitors faces a more-responsive demand. This finding is fundamental to a predicted inverse relationship between market prices and the number of competitors. We also examine the reaction of rival stations to exogenous price changes, and find that the magnitude of a competitors response is inversely related to the density of stations in the market.

An Economic Analysis of a Change in an Excise Tax

The authors present an example of the effect a change in the excise tax can have on retail gasoline prices. The findings provide support for standard economic theory, as well as provide a vehicle for illustrating some of the subtleties of the analysis, including the implicit assumptions regarding the implications for the buying and selling prices of middlemen.

Economic Inefficiency: A Failure of Economists

Use of the concept of economic “efficiency” to guide public policy and even the courts has become almost commonplace. The authors conclude that it is impossible, using traditional microeconomic models, to demonstrate empirically that an outcome is inefficient; they suggest an appropriate role for economics in legal analysis.

Shipping the Good Students Out: The Effect of a Fixed Charge on Student Enrollments

The usual substitution effect of a price change between goods is extended to substitution among differentiated products within a heterogeneous good in a manner useful for the introductory and intermediate courses. The example of student choice of course load is used.