Transcript Introduction to Property Rights

FNR 598R – AGEC 596R
Discussion points from class on Jan.
14, 2003
What is property?
Physical characteristics
• Tangible
– Property that has physical substance and can be touched
• Personal
• Real
• Intangible
– Right or possession of a nonphysical or abstract nature
that has value, such as a copyright, patent, license,
trademark, or goodwill of a business.
– Financial asset having no intrinsic value but
representing value, such securities, notes, accounts
receivable, etc.
Relational characteristics
• With entity holding physical possession
• With entity holding beneficial possession
• With legal system
Incidents of Ownership
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Right to use and manage
Right to the income
Right to the capital
Right to possession
Right to security
Transmissibility (alienation) subject to transactions costs
Absence of term
Prohibition of harmful use – bear cost of ownership
Residuary character
Liability to execution – rights reduced by judgment of
court
Other incidents
• What incidents don’t rise to the level of
ownership?
Can incidents vary by property
attribute?
Introduction to Property Rights
• Structure determines how an economy
functions
• Structure evolves over time
– Economic conditions
– Political conditions
– Non-market demands
What constitutes a property rights
structure?
What is a “right”?
• P has a right to X asserts that
– Others have a duty not to prevent P from doing
X
– Purpose of such a duty is to promote some
interest of P’s, and
– Although it is a matter of self-interest, P should
feel no embarrassment about insisting upon and
enforcing this duty
• Thus, a right is a legitimate claim that one
person can make against another.
A right is a legitimate claim that one
person can make against another
• Relationship among member of a society
– Philosophy
– Sociology
– Economic
• Rights are reciprocal
– Correlative to duties
A right is any demand that an
individual interest should be protected
or promoted, made from the
individual’s own point of view, and
accorded decisive moral importance.
Are property rights “agent relative”?
Our discussion will focus on socalled “third generation rights”
• Deal with communities or whole peoples
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Minority language
National right to self-determination
Peace
Environmental integrity
Economic development
• First generation – traditional liberties
• Second generation – socio-economic claims
Environmental quality is a “public
good”
– Non-individualized goods
– Hard to express the case for environmental
integrity in traditional form of rights analysis
Basis of Current Structure
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Natural rights
English common law
U.S. constitution
State constitutions
Property Rights Structure
• Economic characteristics keyed to achievement of
efficiency
– Universality – all attributes are defined and clear lines of
ownership identified
– Exclusivity – owner has exclusive rights
– Enforceability – rights are enforceable
– Transferability – rights can be transferred to others
• Basic types
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Open access – no restriction on access
Common or community – access limited by members
Individual/Private – access limited to “owner”
Combinations – individual and community
Property Rights Structure
• May vary by component
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Wildlife
Timber
Improvement
Tillage
Pasture
Movement across
Other
PR Structure Reflects Society
• Changes driven by
– Social conflict and cooperation
• Rent seeking behavior
– Increase in economic efficiency
• Maximize rent
– Manner of operation
• Transfers to owners who can capture more rent
PR Structure Reflects Society
• Economic conditions
– Relative scarcity of attribute
– Transactions costs
• Transfer of rights
• Capture rent
• Protection or enforcement
• Social conditions
– Population level
– Income
– Distribution of wealth
Some Basic Conditions
• Transaction costs – associated with transfer,
capture, and protection of rights
• If transaction costs are positive
– Rights to assets cannot be perfectly delineated
– Possibility of “wealth capture” exists in
exchanges
Some Basic Conditions
• Perfect delineation of rights requires owner
and others potentially interested in the asset
to possess full knowledge of all its valued
properties.
Some Basic Conditions
• Divided ownership often increases wealth
– Partition based on
• Transaction and production cost
• Constrain uncompensated exploitation
• Capacity to accommodate variation in income
stream
Efficiency criteria
• Maximization of net value of an asset
requires ownership pattern that can most
effectively constrain uncompensated
exploitation
History
• Monitor balance between common and
private
• Use of commons
– Open access
• Rent dissipated
– Restricted access
• Users capture rent by voluntary use agreement
• Government captures part of rent to provide
involuntary use agreement
History
• Balance determined by
– Transaction costs
• Proportional to
– Number of firms using the commons
– Size of commons
• Exclusion costs
– Individual units of agriculture dominate in Europe until
about 8th Century
• Waste land was a commons
– Increased population led to common fields
Commons in United States
• Dominant until 20th Century
• Remains dominate on at least one-third of
land
• Returning to commons on private land
– Capture environmental rent
Commons for Environmental
Outputs
• Regulated production on private and public
lands
– Rent seeking
– Economic efficiency
Commons for Environmental
Outputs
• Private production of environmental outputs
– Voluntary output on private land
• Complementary with owner’s objectives
• Purchased specifically for this purpose
– Public acquisition
• Incentive based
• Purchased at cost
Role of U.S. Constitution
• Framework for redefining property rights
structure
– Takings must be compensated
– Takings must be for a public good
• Society defines a takings in terms of
– Decrease in rent captured
Role of U.S. Constitution
• Society defines “public good” in terms of
– National security
• Strategic resources
• Human capital
– Economic security
• Commerce
Role of U.S. Constitution
• Public health
– Environmental quality
• Air
• Water
– Social welfare
– Economic welfare
• Species preservation
• Ecosystems health