A string of Supreme Court of Canada decisions has created a new range of property rights for First Nations, which they should be able to use to advance their prosperity.

However, the decisions also erected barriers to voluntary market transactions by multiplying the number of owners and claimants, and establishing opaque und unpredictable rules for making decisions about land subject to claims of aboriginal title or treaty rights such as hunting and fishing.

In theory, it’s possible to reach economically efficient outcomes from any initial assignment of property rights as long as low transaction costs make voluntary exchanges possible. But the Supreme Court has taken no account of transaction costs when it created new aboriginal property rights. Complicated legal tests and decision-making procedures increase transaction costs by extending the number of participants and the time taken to reach decisions.

As transaction costs rise, essential economic projects such as pipelines may be abandoned because they are no longer profitable, as happened to the Mackenzie Valley pipeline proposal. Aboriginal peoples are thus in the paradoxical position of receiving new property rights that they will find difficult to use.

This is an unfortunate situation both for them and the wider Canadian economy.

But the ball is in the courts’ court. It’s recommended that the courts try to resolve this problem by recognizing basic economic principles in future decisions.
In the Secession Reference, the Supreme Court referred to “underlying principles animating the whole of the Constitution, including the principles of federalism, democracy, constitutionalism and the rule of law, and respect for minorities.”

Economic efficiency is arguably as important to the welfare of Canadians as these other principles. If the courts cannot take account of economic efficiency in its aboriginal jurisprudence, governments may have to resort to legal and even constitutional solutions that would be politically difficult to enact.