A property right is the exclusive authority to determine how a resource is used, whether that resource is owned by government or by individuals.[1] All economic goods have a property rights attribute. This attribute has four broad components[2]:
The concept of property rights as used by economists and legal scholars (see property rights) are related but distinct. The distinction is largely seen in the economists' focus on the ability of an individual or collective to control the use of the good. For example, a thief who has stolen a good would not be considered to have legal (de jure) property right to the good, but would be considered to have economic (de facto) property right to the good.
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Property rights to a good must be defined, their use must be monitored, and possession of rights must be enforced. The costs of defining, monitoring, and enforcing property rights are termed transaction costs.[3][4] Depending on the level of transaction costs, various forms of property rights institutions will develop. Each institutional form can be described by the distribution of rights. The following list is ordered from no property rights defined to all property rights being held by individuals[5]
Open-access property is property that is not owned by anyone. It is non-excludable (no one can exclude anyone else from using it) and non-rival (one person's use of it does not prevent others from simultaneously using it). Open-access property is not managed by anyone, and access to it is not controlled. There is no constraint on anyone using open-access property (excluding people is either impossible or prohibitively costly). The tragedy of the commons is a misnomer. It should really be called the tragedy of open access. 'Open-access property may exist because ownership has never been established, because the state has legislated it, or because no effective controls are in place, or feasible, ie, the cost of exclusion outweighs the benefits. The state can sometimes effectively convert open access property into private, common or public property by legislating to define rights and enforce them'.[6] Examples of open-access property are the atmosphere or ocean fisheries.
State property (also known as public property) is property that is owned by all, but its access and use is controlled by the state. An example is a national park.[6]
Common property is property that is owned by a group of individuals. Access, use, and exclusion are controlled by the joint owners. True commons can break down, but, unlike open-access property, common property owners have greater ability to manage conflicts through shared benefits and enforcement.[6]
Private property is both excludable and rival. Private property access, use, exclusion and management are controlled by the private owner.
Implicit or explicit property rights can be created by regulating the environment, either through prescriptive command and control approaches (e.g. limits on input/output/discharge quantities, specified processes/equipment, audits) or by more flexible market-based instruments (e.g. taxes, transferable permits or quotas).[6]
It has been proposed by Ronald Coase (Jnl of Law and Economics, 5 October 1960) that clearly defining and assigning property rights would resolve environmental problems by internalizing externalities and relying on incentives of private owners to conserve resources for the future. However, this assumes that it is possible to internalize all environmental benefits, that owners will have perfect information, that scale economies are manageable, transaction costs are bearable, and that legal frameworks operate efficiently.[6] Strengthening markets and creating and strengthening property rights could reduce, but not eliminate, such problems.