In 1994, economists Terry Anderson and Fred McChesney proposed a simple theory of violence on the American frontier. Their paper, published in the Journal of Law and Economics, modeled an important choice that white settlers and Indians faced when conflicts arose over land claims: Would the two groups fight or negotiate to resolve disputes? Or to put it another way, would they raid or trade?

The answer, they said, depended on the relative costs of raiding and trading. If the costs of fighting decreased, perhaps because one side developed superior weaponry, then disputes were more likely to turn violent. If the costs of negotiation fell, perhaps because a tribe’s land rights were clear and recognized by other tribes, then groups were more likely to bargain to get what they wanted. After all, trade is profitable. Fighting is costly.

Looking back through the historical record, Anderson and McChesney found that this straightforward economic logic explained much about Indian-white relations. But their theory extends beyond just the old western frontier. It sheds light on why we often fight the way we do—especially in the West today.

In the century following the American Revolution, life on the frontier gradually evolved from an era of peaceful negotiation to one of violent takings. This evolution was reflected in the relative costs of raiding and trading as the frontier advanced westward. For instance, tribes in the eastern United States were primarily agricultural societies with clearly specified rights to land. Because these rights were well defined and respected among other tribes, peaceful negotiation was in fact common between whites and Indians in the East. As the frontier expanded further west, however, Indian land rights became less clear. Plains Indians were more nomadic and reliant on wandering bison herds. This made it difficult for western tribes to enforce land claims, making trading more costly.

But perhaps the most important shift from trading to raiding was the rise of a standing army after the Civil War. A standing army dramatically lowered the cost of fighting. It also created military bureaucrats whose careers and budgets depended on continued fighting. “God only knows when, and I do not see how, we can make a decent excuse for an Indian war,” General Sherman complained in 1866. It didn’t take long to find that excuse. More Indian-white battles occurred during the post-war period than at any other time, and raiding quickly supplanted trading on the frontier.

The raid-or-trade model can be applied today to a number of areas where groups compete for control over limited resources. The range war brewing on federal lands in the West, witnessed last month in the standoff on Cliven Bundy’s ranch in Nevada, is case in point. There, where more than half of the land in western states is owned by the federal government, disputes like Bundy’s occur on a near daily basis. In many ways, these federal lands resemble the old western frontier—largely untapped and, at least in a political sense, available for the taking.

Mr. Bundy’s case represents just about everything that’s wrong with federal land management today. Environmental groups file endless legal challenges over land management, forcing agencies to declare more and more areas off limits to grazing, timber harvesting, or energy development. Armed with the Endangered Species Act and other regulatory weapons, environmental groups raid the rights of existing federal land users to protect habitats they like and to stop activities they don’t like. The result is a federal land system strangled by what former U.S. Forest Service chief Jack Ward Thomas describes as a “Gordian knot” of litigation and regulation.

The dispute on the Bundy Ranch began with a raid of this very sort. In 1993, the federal government—under pressure from environmental groups—forced a reduction in Bundy’s grazing permit, declaring the allotment he used as habitat for the federally protected desert tortoise. Because federal grazing permits are attached to specific private ranches or base properties, such reductions can imply a substantial loss to a base ranch’s value. (Bundy holds title to just 160 acres, so the vast majority of his ranch’s value was derived from his permit to graze cattle on the 158,666-acre Bunkerville Allotment.)

Raids like this are all too common across the West, as ranchers’ grazing permits have been weakened or taken by the feds at the behest of environmental groups. Just as in the Old West, where the rise of a standing army encouraged more raiding of Indian lands, the regulatory institutions of the New West have given rise to a standing army of environmental litigators capable of running roughshod over the rights of existing land users.

The raid or trade model provides a simple explanation for why we fight the way we do: It’s just too easy to raid, and too difficult to trade. But it also teaches us that it doesn’t have to be that way.

As I wrote in the Wall Street Journal last month, some environmentalists have begun to trade rather than raid to get what they want. In several cases, environmental groups have paid ranchers to relinquish their grazing permits to protect wildlife habitat. Others have purchased base properties and acquired the federal grazing permits attached to them, spending their own money raised from member donations. Outside of Yellowstone, environmentalists have bargained with ranchers to retire federal grazing permits, compensated ranchers for losses due to wildlife, and negotiated contracts that allow bison to migrate through private land during certain times of the year.

Deals such as these are an exception to the raiding that is rampant across the West. But they represent a fundamentally different choice in the raid-or-trade calculus—one that recognizes existing property rights and seeks an honest bargain. Understanding how and when these trades occur is an important step to finding ways to lower the costs of negotiation far enough to encourage less raiding and more trading.

As I noted in the Journal, the institutions that govern federal lands are ill-equipped to reconcile today’s competing demands in a cooperative manner. They were designed in accordance with the values of an earlier era, and with little regard to the simple fact that values change. Until these institutions evolve as well, trades like the ones I have described are likely to remain the exception rather than the norm.

The history of Indian-white relations suggests one important way to encourage more trading: Property rights must be secure and transferable. But as Mr. Bundy discovered when his permit was sacrificed for the sake of tortoise habitat, grazing permits are far from secure. The Taylor Grazing Act, the 1934 act that regulates grazing on federal lands, refers only to “grazing privileges,” and recent regulations have continually weakened the security of those privileges. Trading will prevail only when grazing privileges are recognized as secure property rights. (Of course, the best way to encourage trading is for federal rangelands to be privatized completely. This is unlikely to happen any time soon, so it is useful to find intermediate solutions that promote trading. In order for that to happen, grazing permits must be treated as property rights to the fullest extent possible.)

Even if grazing rights are well defined and respected, they must also be transferable. Federal grazing rules, however, generally prevent ranchers from trading permits to environmentalists who do not intend to run livestock on the land. As one environmental group in Arizona found out when they purchased a base property in 2005, the associated grazing permit required them to graze cattle or lose the permit. Such a requirement clearly raises the costs of trading for groups that want to use rangelands for purposes other than grazing.

Several of the deals that occur today are less than ideal due to such trade barriers. Environmental groups pay ranchers to relinquish their permits but then must convince the BLM to temporarily retire the allotment to keep other ranchers from claiming it as unused. In a grazing regime like this—with weak property rights and restrictions on the transfers that are allowed—it’s no wonder most environmentalists raid rather than trade.

It’s not clear that ranchers benefit from a regime that discourages trading either. An analysis of federal grazing permits by economists Myles Watts and Lorraine Egan found a seemingly backwards economic result: As the value of the federal rangeland rises, thanks to increasing demands for environmental uses, grazing permit values have declined. “If the rights to grazing permits were secure and transferable,” Watts and Egan explain, “then grazing permits values would not decrease in value as noncommercial uses become more desired.” Indeed, the opposite would happen. Permits would become more valuable as competing groups bargained for gains from trade. Since grazing rights cannot be traded in market institutions based on property rights they are liable to be raided through political institutions, casting uncertainty on their value today.

Of course, in order for trading to succeed, groups must be prevented from simply taking what they want at little or no cost to themselves. But today’s standing army of environmental litigators benefit from raiding rather than trading—and, in many cases, the federal government even ends up footing the bill for environmental groups that sue. Any attempt to promote trading must also reduce these groups’ regulatory power to raid.

At the same time, much more needs to be done to lower the costs of trading among competing groups. Leasing reforms are needed to accommodate a host of different values on federal land, and permits should be recognized as secure and transferable property rights. Moreover, those permits should be allowed to migrate to their most-valued use, whether that’s cattle grazing or tortoise habitat.

What’s certain is that today’s federal land institutions promote far too much raiding. As the Bundy standoff has shown us, conflicts over land use can erupt into full-on range wars. The raid-or-trade model provides a clear and useful lesson: If property rights are well defined and transferable, then disputes among even the most diverse groups are more likely to get resolved peacefully. Finding ways to strengthen property rights, even in the context of federal lands, would go a long way to changing how we fight over land in the West—or whether we even fight at all.

Shawn Regan is research fellow at PERC, the Property and Environment Research Center, a nonprofit research institute located in Bozeman, Montana.