Exclusion versus Governance: Two Strategies for Delineating Property Rights

The delineation of property rights can follow two strategies that form the poles of a spectrum. In the exclusion strategy, rough proxies for use allow further individuation of use to be delegated to an owner. In the governance strategy, resource use is measured in terms of individual activities. Each strategy has its own characteristic cost structure. This theory, which is based on proxy measurement, refines the Demsetz thesis to allow for increased use of governance as well as exclusion. The theory also provides testable implications about the direction of expected change in exclusion and governance regimes and shifts among them. The proxy‐measurement theory is contrasted with an account that is based on rising resource values inducing more incursion and hence lower exclusion. A primary illustrative application is the rise of the open‐field system in England and the Demsetzian puzzle of the open fields both arising from and giving way to more exclusive ownership of parcels.