Coasean economics and the evolution of marine property in Hawaii
ABSTRACT The standard view that the absence of property rights is inefficient contradicts the Coasean proposition that the relative efficiency of different institutions depends on their ability to economize on transaction costs. Moreover, the comparative theory of open access and private property institutions fails to recognize the intermediate institution of common property, finesses dynamic optimization, and provides an incomplete account of governance. We provide a comparative statics framework for alternative modes of resource management, albeit one that allows for dynamic optimization, and show that open access can be efficient under conditions of low population pressure. We show that the intensification of production with population pressure in Hawaii co- evolved with specialization and increased governance, in accordance with the efficiency theory. Instead of market-based specialization, however, economic organization in pre-contact Hawaii was hierarchically determined via top-down management of the ahupua´a.
Coasean economics and the evolution of marine property in Hawaii
Brooks Kaiser (Gettysburg College) and James Roumasset (University of Hawaii Manoa)
The standard view that the absence of property rights is inefficient contradicts the Coasean
proposition that the relative efficiency of different institutions depends on their ability to
economize on transaction costs. Moreover, the comparative theory of open access and private
property institutions fails to recognize the intermediate institution of common property, finesses
dynamic optimization, and provides an incomplete account of governance. We provide a
comparative statics framework for alternative modes of resource management, albeit one that
allows for dynamic optimization, and show that open access can be efficient under conditions of
low population pressure. We show that the intensification of production with population pressure
in Hawaii co-evolved with specialization and increased governance, in accordance with the
efficiency theory. Instead of market-based specialization, however, economic organization in
pre-contact Hawaii was hierarchically determined via top-down management of the ahupua´a.
Lack of academic convergence regarding the causes of changing property rights stems in part
from the lack of a formal structure (see e.g., Property Rights: Cooperation, Conflict, and Law,
edited by Terry L. Anderson and Fred S. McChesney). Drawing from the Hawaiian record, we
hypothesize that property coevolves with governance, which increases with the intensification
and specialization of production. The centerpiece of the theory is a simple comparative statics
framework generalized from resource economics. We show how increasing scarcity of marine
resources leads to more and broader governance and greater resource use restrictions, if
enforcement mechanisms are also free to evolve. As Hawaii moved from small isolated
villages to a unified kingdom and finally to U.S. territorial status and eventual statehood, old and
new institutions, some of which were imposed, overlapped. The experience provides an
intriguing opportunity to study the natural evolution of property rights as both resource pressures
and relative prices change over time.
We will characterize the institutions of governance for Hawaii’s fisheries from early
settlement to contact with the Western world and explain the changes, to the extent possible,
with the second-best theory of economic organization. Western contact brought increased
pressure on fisheries resources. We will show how the intermediate institution of the ahupua´a
economy – centralized decision-making and control in each, somewhat independent valley –
evolved as an effective institution for common property management before Western contact but
was ultimately not well suited to the extensive trading taking place within the Islands and with
the visiting ships after contact.
1.1 The changing institutions of resource governance
In the canonical theory (North and Thomas, 1973, and Demsetz, 1967), private property
is thought to generate unambiguously higher benefits than open access to resources such as
grazing or hunting lands. Moreover, it was thought that once the efficiency benefits of the
institutional change were greater than the enforcement costs, the institutional change would be
effected (Demsetz, 1967; Anderson and Hill, 1975). Later, Ostrom (1990) and others showed
that it was theoretically possible that common property (distinguished from open access by its
well-defined rules of access and management) could achieve efficient allocation. She also
reviewed substantial evidence suggesting that common property regimes were often effective at
resource conservation. Taken together with Hardin’s (1968) classic paper, these studies illustrate
a generalized version of the Coase Theorem, to wit, transaction and agency costs aside,
decentralized, centralized, and intermediate institutions are all capable of achieving Pareto
optimality, i.e. first-best efficiency.
In the Coasean paradigm, however, first-best efficiency is only a point of departure for
comparative institutional analysis. What is needed is a conceptual framework capable of
generating propositions and explanations regarding which institution is second-best efficient
under what circumstances.1 The advocates of private property (Demsetz), public property
(Hardin), and communitarianism (Ostrom) all implicitly agree that the relative efficacy of these
institutions rests primarily on their ability to control the free-rider problem. Through the looking
glass of Hawaiian history, we suggest that the theory of economic organization and institutional
1 This use of second-best follows Dixit (1996). He subsumes rent-seeking, corruption, and other elements of
political economy is his theory of the 3rd-best.
change must be developed beyond this narrow focus. In particular, the theory must explain the
stylized fact that governance increases with specialization and the intensification of production.
It must also be capable of explaining the non-monotonic relationship between these and the
centralization of control, i.e. the governmental Kuznets curve.
2. Historical background
The co-evolution of governance and property with respect to marine resource scarcity can
be clearly illustrated by considering two distinct periods in Hawaiian history, pre-Western
contact and post-Western contact, each divided into sub-periods wherein property structures,
governance, and scarcity pressures changed. The pre-contact period is divided into 4 eras: (1)
Colonization, (2) Developmental, (3) Expansion, and (4) Proto-historic. The post-contact period
is divided into 3 eras: (1) Unification, (2) Independent kingdom, and (3) U.S. territory/state.
2.1 Pre-contact overview
For some time after the Polynesians arrived in Hawaii (roughly 400 A.D.), an ´ohana
(community management) system evolved wherein the patriarchs of each extended family
governed production, including the construction and harvesting from fishponds. This
colonization period is characterized by extremely low populations, the introduction of new
agricultural products (e.g., pigs, taro), and the slow subsequent transformation of the most fertile
valleys, adjacent to superior fishing grounds, into populated communities. Marine resource
pressures were low, and though the kapu system’s origins must have traveled to Hawaii from
earlier Polynesian settlements, implementation and enforcement were low (Kirch, 1996).
Figure 1: Timeline for Hawaiian resource use and development
(Adapted from Kirch (1985), p. 300-1
As populations grew and became more permanent in the Developmental era, governance
by family eventually extended to governance of the entire ahupua´a valley, under a single chief
or ali´i. The chief allocated land and labor to their uses and began to take advantage of the top-
down power to achieve economies of scale and increased production intensity through
specialization, building large-scale irrigation projects and fish ponds in particular. This system
of control evolved into an extensive hierarchy during the Expansion era and eventually
crystallized during the proto-historic period (1650-1785), at the height of the islands’ population,
exhibiting a much higher degree of social hierarchy, specialization, and governance structure
than in other parts of Polynesia (Abbott, 1992; Handy and Handy, 1991).
Figure 1 summarizes available archeological and proto-historic evidence on the timing of
Hawaiian cultural development. The acceleration of population growth, particularly from 1200-
1650, was followed by the intensification of food production, including irrigation and fishpond
development. The social hierarchy was also growing increasingly structured at this time. This
accords with our hypothesis that population pressure induces institutional change, including
increased governance, which facilitates more intensive modes of production.
Table 1 summarizes the estimated populations at the beginning and end of each period, as
well as the progression of indicators of the economic, material and hierarchical structures of the
society during the period in question. Throughout, we see evidence of increasing intensification
of production both on land and at sea. Technology becomes standardized, evidence of
intermediate goods produced by a rising class of specialized adz-makers and fishhook
producers (Kirch, 1985, p. 184). As population increases, konohiki managers develop
increasingly sophisticated irrigation2 and communal fishing techniques, and fishponds are
developed and evolve into true aquaculture3, a unique Hawaiian development amongst
Polynesian cultures, to increase productivity. Kinship networks give way to specialized skills in
fishing and farming, managed by the konohiki. Without external trade, hierarchical stratification
increases, as do efforts at resource extraction for the benefit of the ali’i. The commoners
produce for the konohiki, who controlled the water supply, determined the land allocations for
the commoners, determined fishing rights, and allocated ahupua’a resources for production,
especially labor for communal projects. The konohiki’s duty to the ali’i was to meet an expected
production goal to be presented during the makahiki festival, at which time the ali’i divided the
2 In particular, increased use of Type III irrigation systems, consisting of an irrigation canal running along the
periphery of the field complex, allowing more sophisticated control of water distribution than was used in earlier
Type II systems, where small groups of fields were watered by a single ditch that fed directly into the uppermost
3 True aquaculture means that fish are bred and nourished in captivity; other Polynesian fishponds were holding pens
fed by ocean tides.
tribute amongst his supporters in the chiefly class, including the konohiki. This mechanism
supported an increasingly stratified society.
Table 1: Evolution of Specialization and Production
Time Period Population Social/Management
Less than 100 Ohana network;
Wide variety of
new plants, pigs,
of landscape to
1,000’s Ohana network;
Incipient form of
c. 20,000 (inland
yields in wet
class evident, alii
now tied to land not
Ali’i and kahuna
of kapu; konohiki
land and sea; ali’i
provision by state
ends (1839 last
of land; increasing
with size, gear
Present (c. 2000) 1.2 million Regulated open
marine rights for
cage farming --
2.2 The ahupua´a system
management, albeit more sophisticated than commonly described.4 The ahupua´a provided
The top-down management of the ahupua´a can be classified as common-property
everything “from uka, mountain, whence came wood, kappa for clothing, olona, for fish-line, ti-
leaf for wrapping paper, ie for rattan lashing, wild birds for food, to the kai, sea, whence came
i´a, fish, and all connected therewith” (Davis, 1974, p. 124). Both internal economies, e.g. in
fishpond construction, and external economies were exploited. The strong hierarchical control
also allowed enforcement of conservation measures that reduced the depletion of natural
The community worked under a gift-exchange system known as ko kula ‘uka, ko kula kai,
where those upland traded with those on the sea. This allowed considerable expertise and
specialization to develop as evidenced by the highly developed knowledge and skill amongst
both fishermen and planters, and kept most economic transactions within the ahupua´a. The ali´i
placed taxes on the maka´ainana (commoners) by requiring them to deliver commodities such as
taro and to contribute labor, e.g. to the building of fishponds. Enforcement of the hierarchy
rested in part on brutality and fear of the wrath not only of the chiefs but also of the gods. Both
conditions enhance the benefits of common property rights as 2nd-best (Deininger, 2003, p. 31).
Top-down management also allows the exploitation of benefits across ecosystem
boundaries, not just within them. Some of these benefits fit the standard theory, such as
increased risk reduction. However the ahupua´a system also provided the external economies of
specialization and trade, e.g. between taro cultivators living on the plains and fishermen living on
the coast. (As discussed later, however, only external economies within the scope of the
ahupua’a government could be readily exploited.)
The hierarchical system allowed exploitation of the external economies from
specialization, given the existing avenues for trade, as well as internal economies in the
production of particular goods. Furthermore, the centralized control at the ahupua´a level
satisfied the four requirements for viable common property rights outlined by Deininger (2003):
(1) Unambiguous property lines prevailed as ahupua´a generally followed watershed
4 See e.g. the cases decribed in Ostrom, 1990.
(2) Investment in irrigation and fishpond infrastructure exploited economies of scale and
ecosystem enhancement, improving directly the lives of the people,
(3) Community property alleviated risks of enemy incursion and reduced idiosyncratic
(4) Planters and fishermen retained portions of their effort, reaping individual benefits
from their productivity.
Deininger also notes that common property is more likely to succeed where group
members have equal entitlements, e.g. roughly the same quantity and quality of farmland. This
makes the more fundamental condition that costs of membership are roughly proportional to
benefits contractually simple to specify. The case of the ahupua´a system affords a
generalization, i.e. proportional taxation can also be efficient and readily administered where
wealth is unequally distributed, provided that separate rules are specified for each stratum and
the members of each stratum have roughly equal entitlements.
First, the top-down management of the meant that work and reward were not distributed
equally across society, only within each stratum. This facilitates a more general statement about
the condition for successful common property management, namely that the allocation of costs
conforms to the principle of benefit taxation, albeit within the prevailing system of vertical
2.3 The kapu system: enforcement of rights
This fear of a god witnessing the breaking of a kapu must have reduced enforcement
costs but not eliminated them. In 1824, C.S. Stewart noted in his published journal that he had
seen a brackish fishpond “literally alive with the finest of mullet; the surface of the water is
almost in a constant ripple from their motions; and hundreds can be taken at any time by a single
cast of a small net.” He attributes this to the success of the kapu and the fact that no one of rank
had lived there lately (Dieudonne, 2002, p. 105). Alternatively, a 19th century Hawaiian historian
wrote that pond caretakers could eat some fish species openly, “but others they would eat
secretly” (Summers, 1964).
The earliest settlement sites (600-1100) were located in wet, windward areas with good
fishing grounds. Populations may have been very small, perhaps 100 people in an extended
‘ohana (Kirch, 1996). It is clear from bone pile analyses that pig and dog populations were
growing rapidly over the time period and increasingly supplementing the fish protein collected
from the sea. During the Expansion Period (1100-1650) population estimates increase to several
hundred thousand, with some estimates as high as 800,000 (Kirch, 1985; Kame´eleihiwa, 1992).
With this growth, overfishing from open access was a bigger problem, and governance increased
within the existing institutional framework. The chiefs limited access during certain seasons by
placing a kapu (taboo) on fishing.5 These kapu are generally associated with particular gods and
variants of the system are known throughout Polynesia. The kapu were clearly conservation
oriented; one of the most important kapu created alternating closed seasons for two species of
primary import, ‘opelu (Mackerel scad) and aku (skipjack tuna). Other kapu closed fisheries
during spawning seasons in particular.
2.4 Fishponds: a backstop resource
Credit for early construction of fishponds (mainly pre-13th century) is veiled in the
mythology of pre-contact Hawaii and demonstrates the difficulties in ascertaining the native
population’s relation to its resources in the early pre-contact period. Most early ponds are
attributed to the menehune, or “little people,” who were said to have created great public works,
particularly of irrigation (many still standing today), each in a single night’s work. The identity
of these individuals is an interesting mystery related to resource use in pre-contact Hawaii.
Some believe that the menehune were early arrivals to Hawaii (c. 400 AD) from the Marquesas
Islands, and that they were conquered and made to work for the later, physically larger arrivals
from elsewhere in Polynesia (c. 1100 AD)6. Whatever the truth, the man-hours actually required
to construct these public works projects must have been considerable. Construction of one of the
5 Fishponds may have been a response to this resource pressure not only as a source of increased production, but
also as a social mechanism by which the ali´i could continue to consume fish during the kapu periods without
“offending the gods.” Indeed, two main benefits arose from the ponds: (1) fish could be held and cultivated for easy
access by the chiefs when desired, and (2) fish would be available to the chiefs during times of kapu, because the
enclosure removed the area from the sea, which had the kapu, and placed it on land, from which the chiefs could still
6 This interpretation becomes more plausible in light of the fact that menehune is a permutation of manahune, or
slave, in the Polynesian tongue from which Hawaiian is derived.
last new ponds on Molokai in the early 1800s took 10,000 men, and Summers (1964) estimates
building of sizeable new ponds probably averaged a year.7
Strict limited access to the ponds must have been essential, and governance measures
increased accordingly. Only 30% of ahupua´a had associated fishponds (ponds never crossed
ahupua´a borders), and the ponds’ total area of about 6650 acres would have produced
somewhere between 1.75 million and 2 million pounds of fish per year – about 6 to 9 pounds per
person per annum at the time of contact (Kikuchi, 1985; Hammon, 1975).8 With little trading
between ahupua´a, and the ability of the ali´i to reserve the catch for themselves, fishponds
produced considerably greater sustenance for the higher levels of the social hierarchy with little
direct benefit to the commoners. Indirect benefits stemmed both from reduced fishing pressure
on the coastal fisheries and from the increased fish population overall. The hierarchical ahupua´a
system allowed the capture of the economies of scale necessary to develop these fishponds while
the complementary kapu system provided the mechanism by which efficient harvesting could be
enforced. Inasmuch as the ali´i captured the rents, this exemplifies a case in which the primary
action group (Davis and North), undertake the institutional innovation in question.
From records of oral genealogical history, we know that populations must have been
driven to create ponds as soon as there was sufficient labor available to do so, if appropriate
environmental conditions existed. There are at least 6 fishponds constructed on Oahu and Kauai
before the 13th Century (Kikuchi, 1973). Also at this time communities begin to develop in the
drier, leeward valleys, suggesting population expansion and resource pressures. The primary
growth in fishponds is attributed to the 16th Century (Kikuchi, 1973), as is the growth in
population. By the 18th Century, repairs to existing ponds may have been as important as new
construction. The last ponds were constructed at the beginning of the 19th Century, as Western
contact and the resulting population decreases changed the social structure and manpower of the
islands. There were also more profitable opportunities for the ali´i developing in trade for other
resources, particularly sandalwood.
2.5 Changes in land tenure, fishing rights, and Western contact
7 As the ponds enhanced characteristics of the natural environment, there is no set size or dimensions for a fishpond.
The ponds ranged from an acre in size up to 523 acres, and some walls were 1000s of feet long and several (up to
18) feet thick, while many were much smaller.
8 Population in the islands has been conservatively estimated at 200,000-225,000 in 1778, at contact.
While rent extraction by the chiefs was expected and accepted as the way of life, the
hierarchical control included a mechanism for transferring these rents every generation in order
to maintain consolidated support for the ali´i nui, or head chief. This mechanism, the mahele,
was a redistribution of rights that occurred with every change of top leadership. The new ali’i
nui reallocated the lands amongst his supporters, who in turn reallocated land amongst their
supporters. Commoners were free to move, and did so if the konohiki or ali’i mistreated them
(Mitchell, 1992). The mahele enhanced the communal nature of the ahupua´a enterprise by
lessening the import of developing capital that would not be transferable after a generation, and
the ali´i and the landlords who managed the ahupua´a, the konohiki, acted more as stewards of
the land than monopolists due in part to the fact they could lose their labor force to others if they
did not appear fair.
King Kamehameha was a conservationist. Under his reign, three major fishpond projects
were undertaken, and sandalwood trading with Westerners was carefully managed, for example.
Being less adroit at governing the chiefs, however, Kamehameha’s successor Liholiho lost
control of resource conservation at Kamehameha’s death. Already weakened by his stepmother
and regent’s (Queen Ka’ahumanu) transfer of loyalties, Liholiho was unable to consolidate his
power through the traditional mahele mechanism and allowed existing chiefs to exploit
sandalwood and other natural resources as payback for their fielty (LaCroix and Roumasset I).
Enforcement costs of the consolidated hierarchy increased under Liholiho. The
introduction of new religious institutions (Christianity in particular) and the apparent impotence
of the Hawaiian gods in protecting the population from Western diseases rendered the kapu
system less effective and the system was officially abandoned in 1819. (Kame’eleihiwa, 1992, p
As the mahele did not take place at the time of Liholiho’s succession, the former chiefs
became entrenched. A move toward higher productivity yields occurred (Khil, 1978). Of greater
impact, however, following this relaxation of conservation and increase in rent-seeking by the
lesser ali’i, the sandalwood resource was depleted by 1850, leaving not only a void in tradable
goods, but also considerable environmental degradation to watersheds. Thus the greater scarcity
of extractable resources increased the benefits of conservation just as the hierarchical institution
designed to protect them failed due to the increased costs of governance.
The hierarchical system of ahupua´a control was relaxed and the commoners received
greater protection of property. In 1839 a Declaration of Rights limited the ability of chiefs to
extract property from commoners. This appears to have been necessary because the ali´i were
finding increasing benefit from the exploitation of the commoners as producers of goods that
could be traded for the newly influential foreign goods and the status and power they conveyed
(Kame´eleihiwa, 1992, p 205).
Throughout the process of consolidation, the responsibilities of the commoners changed
little; each was expected to perform his farming or fishing duties under the control of the
ahupua’a konohiki. Two important trends evolved, however. First, the commoners developed
specialized skills (e.g. in taro and dryland farming and various fishing techniques), enhancing
resource productivity while tying them more closely to the ahupua´a (Handy and Handy, 1991,
p. 310ff). Second, the konohiki’s role of manager evolved with increased responsibilities and
specialized knowledge (e.g. organizing hukilau, irrigation and other communal activities). When
the position of konohiki first emerged (during the expansion period), he was primarily a tax
collector providing service for a superior ali’i in return for status and a portion of the harvests.
By the time of the Great Mahele, his role had been gradually transformed into a position that
claimed ownership of the resources, and the associated ability to make decisions.
The ahupua´a extended into the sea, and property rights were also redefined and
extended in coastal fisheries. Fishing rights remained tied to the management of the land, and
remained in the hands of the konohiki, ali´i and the king, with intent of balancing stewardship for
the people with private goals. While the fisheries were still common property, enforcement costs
and benefits in coastal fisheries controlled directly by konohiki differed from those of the
government controlled, open water fisheries, and the coastal, konohiki-managed fisheries. While
government lands and their appurtenant fisheries quickly were opened to the public, the konohiki
retained their rights to private use throughout the 19th century.
The konohiki (acting for the ali´i) could regulate fishing by monopoly reservation of a
particular species and by seasonal restrictions. He could collect in rents 1/3 of the harvests of
open access fishes, for the benefit of the ahupua´a (Khil, 1978, p 10). The rights belonged to the
job of konohiki, not the man, and were not transferable, with the intent of maintaining incentives
for stewardship. The king also had the ability to set restrictions on non-transient shoal fishes and
transient shoal fishes in the Main Hawaiian Islands. He was entitled to 2/3 of all harvests, for the
benefit of the government (Khil, 1978, p. 11).
Throughout the 1840s, the Great Mahele and the changing constitutional rights slowly
made more explicit the powers of the konohiki and the king and their portions of the take
changed. In 1841, the king’s take was reduced to 50%, and in 1845, the konohiki was given
rights over the sea extending one mile from the beach at low water. The catch was to be shared
evenly with the tenants. In 1848, Hawaiian property rights received their greatest institutional
change under the Great Mahele. Under increasing pressure from the growing Caucasian
population, the land was permanently divided amongst the king (state), the ali´i and konohiki
(ahupua´a) and the commoners, paving the way for transferable rights to land and sea. It is at
this time that the role of the konohiki seems to have changed from steward to owner9.
From this period of history, we garner three potential trends in institutional evolution.
First, each institutional framework has some flexibility in accommodating increased governance.
Governance within an institutional system can respond to changes in resource pressures, albeit
large changes in relative prices may occasion a transition to new institutions. Second,
institutions do not simply switch instantaneously from one form to another, even when they are
seemingly imposed. The example of the konohiki’s slow transition from a minion of the ali’i, to
an incentive-driven resource owner, shows the shift from manager to owner that accompanies a
shift from a common property regime to a private property one.
Over time, the organizational triangle got higher with consolidation, i.e. there were
increasing layers of hierarchy and a more structured system of governance (e.g. more control by
the priesthood and more elaborate kapu restrictions). Within the levels of governance, e.g.
konohiki, the “managers” held more independence. That is, the various players were not just
passing down orders from the king; their own incentive systems were more developed. All
fisheries didn’t follow this pattern, however. Where the appurtenant fisheries became less
9 Though the Great Mahele ostensibly divided land in equal shares between the royalty, the chiefs and the
commoners through the agency of the konohiki, the actual process of attaining title to fee simple property was
complex, and in particular, required a commutation fee that resulted in a large portion of the chiefs’ lands being
returned to the state in payment. The commoners’ inability as a group to acquire much fee simple property stemmed
from hurdles that included paying for land surveys and unfamiliarity with the system. Fewer than 8421 parcels,
averaging 3 acres in size, were in the end awarded to commoners, accounting for 28,658 acres of land, or less than
1% of Hawaii’s land area (Kame´eleihiwa, 1992, p. 294). The main beneficiaries of the Great Mahele appear to
have been Westerners who could now obtain fee simple land.
valuable due to the development of other sources (e.g., fishponds), their organizations devolved
towards open access, i.e. governance actually decreased.
2.6 Dual systems of fisheries management: transitional institutions
Moku Ali’i (district)
Mo’i Ali’i (Island)
Figure 2: Hierarchy grows increasingly complex over time, but incorporates existing
systems. The subsequent transition to decentralization relies on existing relationships (e.g.
some functions of Ali’i assumed by Konohiki and later by resource owners)
Moku Ali’i (district)