Cowboys and contracts

This article expands Harold Demsetz's seminal work on property rights by arguing that property rights entrepreneurs discover previously unowned or unpriced attributes of a resource and capture rents by defining and enforcing rights to those attributes. To keep the rents from these new uses from being dissipated in the tragedy of the commons, the entrepreneur must contract to exclude others from the value of his perception. We describe specific and general contracting and use the frontier of the American West to illustrate the two. A central theme is that smaller, homogeneous groups are more likely to prevent rent dissipation and that more centralized political processes are more likely to encourage it.