C. Alexander Evans & J. Mark Ramseyer, Property Law at the Transition to Exponential Growth: Examples from Japan (John M. Olin Center L., Econ. & Bus. Discussion Paper No. 1097, 2023).
Abstract: Economies grow when people make ever-more productive use of the assets and skills they control. Growth requires shifting those resources and that labor to ever-more-productive uses. Before the industrial revolution, economies grew steadily, but very slowly. As they grew, people did shift resources and labor, but without much urgency. By the 20th century, however, most large economies were accelerating from linear to exponential rates of growth. With that change, people faced large incentives to shift their resources more rapidly. That shift was often a prerequisite to exponential growth--but more profitable uses also resulted from the exponential growth. Where an economy grows slowly, people need not worry much about their ability to shift resources to higher valued uses. After all, the slow rates of growth mean that they are not likely to want to move assets to new uses very often. So, if they worry others in their village might try to expropriate their wealth, it may make sense for them to opt for an unanimity requirement for decisions about resource transfer. Where growth is slow, in other words, it may be rational to prioritize protection from opportunistic claimants over flexibility. Sometimes, however, multiple veto players delay shifts in the asset use, for protection from exploitive claims comes with diminished flexibility as a trade-off. An unanimity requirement makes every claimant a veto holder. This problem is exacerbated as increasing growth makes transfer of resources more frequently incentivized. In this essay, we explore several examples from early 20th century Japanese property law that gave multiple parties a veto over changes in asset use. We illustrate how these unanimity rules dampened the pace of economic change, and we discuss how courts and legislators responded.