EclectEcon

The famous Coase Theorem in economics relies on the assumption that property rights are both well-defined and easily enforced. Indeed, property rights (or legal entitlements, as I prefer to use the term in my courses to make the coverage of the theorem as broad as possible) lie at the heart of efficient production and trade. Without them, as we have seen with the dismal failures of planned economies, people shirk (more than in property-based economies) and resources are frequently assigned to inefficient uses.

So what happened when the Israelis pulled out of Gaza, leaving behind massively productive greenhouses that produced bug-free vegetables? Apparently the Gates' foundation bought out the Israelis.

Gates' charitable foundation, the largest in the world, provided the bulk of the funds used to purchase the greenhouses from Gush Katif residents at rock-bottom prices, to be handed over to the Palestinian Authority (PA), according to Forbes magazine.

... Prior to the Disengagement, Israel's bug-free greens were grown in the advanced Gush Katif greenhouses and Gush Katif farmers exported more than $100 million in produce to Europe annually.

In a hasty $14 million deal brokered by former World Bank President James Wolfensohn, the greenhouses were transferred to the Palestinian Authority. The PA then took responsibility for the facilities, but failed to protect them from looters following the withdrawal of the Israeli military. PA security personnel assigned to protect the greenhouses reportedly took part in the looting as well.

The greenhouses that survived are not being successfully used, as PA farmers complain that they are having trouble reproducing the bug-free produce grown by the greenhouses’ former Jewish owners. WorldNetDaily reports that the Arabs have asked the US governmental development group USAID to hire back the expelled Israelis as consultants for the declining vegetable businesses.

Without well-defined and well-enforced property rights, productivity in the remaining greenhouses will be low. Incentives will not be compatible with efficient production and growth.

Also, as I wrote back in January, acquiring physical capital is not sufficient to guarantee the success of many operations; know-how is also important. Perhaps the Gates' foundation will also pay for licensing this know-how [after they hire enough non-corrupt security forces to guard the greenhouses!].

[h/t to The Emirates Economist for the pointer]