Property rights (economics)
Encyclopedia
A property right is the exclusive authority to determine how a resource is used, whether that resource is owned by government or by individuals. All economic goods have a property rights attribute. This attribute has four broad components:
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.
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'. 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.
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.
Private property
is both excludable and rival. Private property access, use, exclusion and management are controlled by the private owner.
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).
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. Strengthening markets and creating and strengthening property rights could reduce, but not eliminate, such problems.
- the right to use the good
- the right to earn income from the good
- the right to transfer the good to others
- the right to enforcement of property rights.
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
De jure
De jure is an expression that means "concerning law", as contrasted with de facto, which means "concerning fact".De jure = 'Legally', De facto = 'In fact'....
) property right to the good, but would be considered to have economic (de facto
De facto
De facto is a Latin expression that means "concerning fact." In law, it often means "in practice but not necessarily ordained by law" or "in practice or actuality, but not officially established." It is commonly used in contrast to de jure when referring to matters of law, governance, or...
) property right to the good.
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. 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- Open access (res nulliusRes nulliusRes nullius is a Latin term derived from Roman law whereby res is not yet the object of rights of any specific subject. Such items are considered ownerless property and are usually free to be owned...
) - State property
- Common property
- Private property
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
Rivalry (economics)
In economics, rivalry is a characteristic of a good. A good can be placed along a continuum ranging from rivalrous to non-rival. The same characteristic is sometimes referred to as subtractable or non-subtractable . A rival good is a good whose consumption by one consumer prevents simultaneous...
(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
Tragedy of the commons
The tragedy of the commons is a dilemma arising from the situation in which multiple individuals, acting independently and rationally consulting their own self-interest, will ultimately deplete a shared limited resource, even when it is clear that it is not in anyone's long-term interest for this...
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'. Examples of open-access property are the atmosphere or ocean fisheries.
State property
State property
State property is property owned by the state anything registered with the "state" becomes 'State property'. Such property may also referred to crown property...
(also known as public property
Public property
Public property is property, which is dedicated to the use of the public. It is a subset of state property. The term may be used either to describe the use to which the property is put, or to describe the character of its ownership...
) is property that is owned by all, but its access and use is controlled by the state. An example is a national park.
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.
Private property
Private property
Private property is the right of persons and firms to obtain, own, control, employ, dispose of, and bequeath land, capital, and other forms of property. Private property is distinguishable from public property, which refers to assets owned by a state, community or government rather than by...
is both excludable and rival. Private property access, use, exclusion and management are controlled by the private owner.
Property rights and the environment
Implicit or explicit property rights can be created by regulating the environment, either through prescriptive command and controlCommand and Control (government)
In management, command and control refers more generally to the maintenance of authority with somewhat more distributed decision making. In these civilian contexts, the term "command" is unfashionable but the meaning is the same. Some management science theorists even hold that the idea is now...
approaches (e.g. limits on input/output/discharge quantities, specified processes/equipment, audits) or by more flexible market-based instruments
Market-based instruments
Market-based instruments are policy instruments that use price or other economic variables to provide incentives for polluters to reduce harmful emissions...
(e.g. taxes, transferable permits or quotas).
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. Strengthening markets and creating and strengthening property rights could reduce, but not eliminate, such problems.
Related Terms and Disciplines
- Bundle of rightsBundle of RightsThe bundle of rights is a common way to explain the complexities of property ownership. Teachers often use this concept as a way to organize confusing and sometimes contradictory data about real estate....
- Legal theory of Property rights
- Law and EconomicsLaw and economicsThe economic analysis of law is an analysis of law applying methods of economics. Economic concepts are used to explain the effects of laws, to assess which legal rules are economically efficient, and to predict which legal rules will be promulgated.-Relationship to other disciplines and...
- Transaction CostsTransaction costIn economics and related disciplines, a transaction cost is a cost incurred in making an economic exchange . For example, most people, when buying or selling a stock, must pay a commission to their broker; that commission is a transaction cost of doing the stock deal...
Economists working on property rights issues
- Armen AlchianArmen AlchianArmen Albert Alchian is an American economist and an emeritus professor of economics at the University of California, Los Angeles....
- Yoram BarzelYoram BarzelYoram Barzel is an Israeli economist and a professor of economics at the University of Washington. He is interested in PropertyRights, Applied Price Theory, and Political Economy.- Education :...
- Ronald CoaseRonald CoaseRonald Harry Coase is a British-born, American-based economist and the Clifton R. Musser Professor Emeritus of Economics at the University of Chicago Law School. After studying with the University of London External Programme in 1927–29, Coase entered the London School of Economics, where he took...
- Steven N. S. CheungSteven N. S. CheungSteven Ng-Sheong Cheung , a Hong Kong born economist, specializes in the fields of transaction costs and property rights. Known for his work on private property rights and transaction costs, he achieved his fame with an economic analysis on China open-door policy after 1980s...
- Harold DemsetzHarold DemsetzHarold Demsetz is a professor emeritus of economics at the University of California at Los Angeles .-Career:Demsetz includes a short intellectual autobiography....
- Walter BlockWalter BlockWalter Edward Block is a free market economist and anarcho-capitalist associated with the Austrian School of economics.-Personal history and education:...
- Hernando de Soto Polar