Razorbacks, Ticky Cows, and the Closing of the Georgia Open Range: The Dynamics of Institutional Change Uncovered

While a redistribution of property rights might enable society to capture potential efficiency gains, the inevitable distributional conflicts make the transformation far from automatic. As individuals who would be adversely affected by the change seek a priori contracts for compensation, those who anticipate net benefits must decide how much to pay, who should pay, and who should receive their payments. As free riding, strategic bargaining, or the expensive monitoring and enforcement of contracts ultimately block voluntary agreements, society becomes unable to adopt the new institutional structure that promised to increase social wealth. If distributional conflicts become so severe and threaten to prevent the implementation of an income-enhancing property rights arrangement, what type of mechanisms will evolve to work these conflicts out? When voluntary negotiations break down, the government is usually called in to implement publically what individuals could not accomplish in the private sector. How, therefore, does the political process influence the path of institutional and economic development? This paper explores the dynamics of institutional change in an attempt to explain better why the adoption of potentially productive institutions are delayed and why inefficient ones persist. The paper provides a micro-analysis of the transformation from an open range to a closed range policy in postbellum Georgia. The traditional agricultural practice in Georgia from colonial times until after the Civil War allowed animals to roam the countryside freely and forced farmers to erect fences around their growing crops. All unfenced land, therefore, was considered common pasture that could be used by anyone. After the Civil War there was a concerted effort to eradicate the open range policy and to force all livestock owners to fence in their animals instead of forcing farmers to fence them out of the growing crops. According to estimates provided in the paper, switching to the closed range would have generated net benefits for specific regions for Georgia, but distributional conflicts, coupled with high transaction costs, made a voluntary agreement to close the range unattainable. The empirical evidence shows that the Georgia legislature's role in facilitating the closing of the range was crucial. First, the legislature allowed countywide referenda on what became known as the fence question. Upon seeing that majority rule generally failed as a mechanism to facilitate the adoption of a relatively profitable institution, the legislative body manipulated the voting mechanism so as to guarantee compensation for a subset of the expected losers. By forcing the transfer of income from expected winners to expected losers, the state legislature was able to facilitate the adoption of the closed range policy that promoted more rapid agricultural development in postbellum Georgia

Did Workers Pay for the Passage of Workers' Compensation Laws?

Market responses to legislative reforms often mitigate the expected gains that reformers promise in legislation. Contemporaries hailed workers' compensation as a boon to workers because it raised the amount of post-accident compensation paid to injured workers. Despite the large gains to workers, employers often supported the legislation. Analysis of several wage samples from the early 1900s shows that employers were able to pass a significant part of the added costs of higher post-accident compensation onto some workers in the form of reductions in wages. The size of the wage offsets, however, were smaller for union workers.