Property rights (economics)

Property rights are theoretical socially-enforced constructs in economics for determining how a resource or economic good is used and owned.[1] Resources can be owned by (and hence be the property of) individuals, associations or governments.[2] Property rights can be viewed as an attribute of an economic good. This attribute has four broad components[3] and is often referred to as a bundle of rights:[4]

  1. the right to use the good
  2. the right to earn income from the good
  3. the right to transfer the good to others
  4. the right to enforcement of property rights

In economics, property is usually considered to be ownership (rights to the proceeds generated by the property) and control over a resource or good. Many economists effectively argue that property rights need to be fixed and need to portray the relationships among other parties in order to be more effective.[5]

Property-rights regimes

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.[6][7] 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[8]

Open-access property may exist because ownership has never been established, granted, by laws within a particular country, or because no effective controls are in place, or feasible, i.e., the cost of exclusion outweighs the benefits. The government can sometimes effectively convert open access property into private, common or public property through the land grant process, by legislating to define public/private rights previously not granted.
— Kevin Guerin, [9]

Property rights and the environment

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 market-based instruments (e.g. taxes, transferable permits or quotas).[9]

It has been proposed by Ronald Coase 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. At common law nuisance and tort law allows adjacent property holders to seek compensation when individual actions diminish the air and water quality for adjacent landowners. Critics of this view argue that 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.[9]

Property rights literature

In 2013 researchers[10] produced an annotated bibliography on the property rights literature concerned with two principal outcomes: (a) reduction in investors risk and increase in incentives to invest, and (b) improvements in household welfare; the researchers explored the channels through which property rights affect growth and household welfare in developing countries. They found that better protection of property rights can affect several development outcomes, including better management of natural resources.

Property rights approach to the theory of the firm

The property rights approach to the theory of the firm based on the incomplete contracting paradigm was developed by Sanford Grossman, Oliver Hart, and John Moore.[11][12] These authors argue that in the real world, contracts are incomplete and hence it is impossible to contractually specify what decisions will have to be taken in any conceivable state of the world. There will be renegotiations in the future, so parties have insufficient investment incentives (since they will only get a fraction of the investment's return in future negotiations); i.e., there is a hold-up problem. Hence, property rights matter, because they determine who has control over future decisions if no agreement will be reached. In other words, property rights determine the parties' future bargaining positions (while their bargaining powers, i.e. their fractions of the renegotiation surplus, are independent of the property rights allocation).[13] The property rights approach to the theory of the firm can thus explain pros and cons of integration in the context of private firms. Yet, it has also been applied in various other frameworks such as public good provision and privatization.[14][15] The property rights approach has been extended in many directions. For instance, some authors have studied different bargaining solutions,[16][17] while other authors have studied the role of asymmetric information.[18]

See also

References

  1. ↑ Alchian, Armen A. "Property Rights". New Palgrave Dictionary of Economics, Second Edition (2008). A property right is a socially enforced right to select uses of an economic good.
  2. ↑ Alchian, Armen A. (2008). "Property Rights". In David R. Henderson. Concise Encyclopedia of Economics (2nd ed.). Indianapolis: Library of Economics and Liberty. ISBN 978-0865976658. OCLC 237794267.
  3. ↑ • "Economics Glossary". Retrieved 2007-01-28.
       • Thrainn Eggertsson (1990). Economic behavior and institutions. Cambridge, UK: Cambridge University Press. ISBN 0-521-34891-9.
       • Dean Lueck (2008). "property law, economics and," The New Palgrave Dictionary of Economics, 2nd Edition. Abstract.
  4. ↑ Klein, Daniel B. and John Robinson. "Property: A Bundle of Rights? Prologue to the Symposium." Econ Journal Watch 8(3): 193–204, September 2011.
  5. ↑ http://onlinelibrary.wiley.com/doi/10.1111/ecpo.12021/full
  6. ↑ Barzel, Yoram (April 1982). "Measurement Costs and the Organization of Markets". Journal of Law and Economics 25 (1): 27–48. doi:10.1086/467005. ISSN 0022-2186. JSTOR 725223.
  7. ↑ Douglas Allen, (1991). What are Transaction Costs? (Research in Law and Economics). Jai Pr. ISBN 0-7623-1115-0.
  8. ↑ Daniel W. Bromley, (1991). Environment and Economy: Property Rights and Public Policy. Cambridge, MA: Blackwell Pub. ISBN 1-55786-087-4.
  9. 1 2 3 4 5 Guerin, K. (2003). Property Rights and Environmental Policy: A New Zealand Perspective. Wellington, New Zealand: NZ Treasury
  10. ↑ Mike Denison and Robyn Klingler-Vidra, October 2012, Annotated Bibliography for Rapid Review on Property Rights, Economics and Private Sector Professional Evidence and Applied Knowledge Services (EPS PEAKS)https://partnerplatform.org/?tcafmd80
  11. ↑ Grossman, Sanford J.; Hart, Oliver D. (1986). "The Costs and Benefits of Ownership: A Theory of Vertical and Lateral Integration". Journal of Political Economy 94 (4): 691–719. doi:10.1086/261404. ISSN 0022-3808.
  12. ↑ Hart, Oliver; Moore, John (1990). "Property Rights and the Nature of the Firm". Journal of Political Economy 98 (6): 1119–1158. doi:10.1086/261729. ISSN 0022-3808.
  13. ↑ Schmitz, Patrick W. (2013). "Bargaining position, bargaining power, and the property rights approach". Economics Letters 119 (1): 28–31. doi:10.1016/j.econlet.2013.01.011.
  14. ↑ Hart, Oliver; Shleifer, Andrei; Vishny, Robert W. (1997). "The Proper Scope of Government: Theory and an Application to Prisons". The Quarterly Journal of Economics 112 (4): 1127–1161. doi:10.1162/003355300555448. ISSN 0033-5533.
  15. ↑ Hoppe, Eva I.; Schmitz, Patrick W. (2010). "Public versus private ownership: Quantity contracts and the allocation of investment tasks". Journal of Public Economics 94 (3–4): 258–268. doi:10.1016/j.jpubeco.2009.11.009.
  16. ↑ Meza, David de; Lockwood, Ben (1998). "Does Asset Ownership Always Motivate Managers? Outside Options and the Property Rights Theory of the Firm". The Quarterly Journal of Economics 113 (2): 361–386. doi:10.1162/003355398555621. ISSN 0033-5533.
  17. ↑ Chiu, Y. Stephen (1998). "Noncooperative Bargaining, Hostages, and Optimal Asset Ownership". The American Economic Review 88 (4): 882–901.
  18. ↑ Schmitz, Patrick W (2006). "Information Gathering, Transaction Costs, and the Property Rights Approach". American Economic Review 96 (1): 422–434. doi:10.1257/000282806776157722.


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