The Economics of Property Rights

By Morriss, Andrew P. | Freeman, March 2007 | Go to article overview

The Economics of Property Rights


Morriss, Andrew P., Freeman


Property rights play a critical role in a wide range of economic institutions. From understanding why owners are generally better stewards of property than renters to finding ways to resolve environmental problems, property rights are at the center of the analysis. It is unsurprising, therefore, that economics offers important insights into property rights. The economic approach is not the only way to think about property, and economic analysis is often misused, but it is an important part of understanding why property rights are so important to liberty and human progress. In particular, economics can help us understand two fundamental aspects of property rights: how they change and the types of problems they solve.

A simple example illustrates the evolution of property rights in land. The basic form of property in land in the United States is called the fee simple absolute. The owner of a fee simple absolute has the maximum extent of rights possible in the land under the law; most privately held American land is in this form.

An owner of a fee simple absolute in a plot of land in 1800 and an owner of a fee simple absolute in the same plot in 1900 had different sets of rights because of changes in the law. Between 1800 and 1900 the federal government abandoned a claim it had in mineral rights in private land. Most national governments in 1800 claimed a share of any minerals produced from any land within their boundaries. (Indeed, most national governments still make such a claim today.) Although American law was not completely clear on the subject in 1800, man/ thought that the federal government had inherited the English government's claim of a share of mineral rights, and such claims were asserted by the federal government a number of times during the first part of the nineteenth century. By 1900, however, the United States had effectively abandoned its general mineral-rights claim and recognized that private landowners with fee simple title had property rights to both the surface and subsurface of their land. Indeed, the U.S. government went further and through a series of laws in the 1860s and 1870s, culminating in the General Mining Law of 1872, recognized individual claims of ownership of mineral rights and surface rights by those who discovered valuable mineral deposits on federal land.

Now compare the rights held by today's owner of this land with the rights held in 1 900. Over the past century or so, various governments took important parts of the property-rights bundle from many landowners. Local governments passed zoning laws, reducing landowners' freedom to use their property as they see fit. State governments adopted a wide range of land-use restrictions. Some, such as Florida, adopted statewide land-use planning programs that imposed major restrictions on how property could be used. Others simply increased taxes on land. The federal government significantly reduced landowners' rights through regulatory statutes such as the Endangered Species Act and the assertion of jurisdiction over a wide range of "wetlands" under the Clean Water Act. As a result, an owner of a fee simple absolute in that same property today has many fewer rights than the 1900 owner did.

At the same time, the rights that remain in that fee simple absolute have evolved in ways that make them potentially more valuable today through private efforts at rebundling rights. For example, one of the fastestgrowing forms of property ownership today is ownership in communities in which a developer has rearranged the property rights through covenants, easements, and servitudes. One of the best known such communities is the town of Celebration in Florida, constructed by Disney. There restrictions in the deeds govern a multitude of details of the houses constructed on the property. Houses must conform to a particular architectural style, have front porches and white window hangings fronting the street, be painted a color from a specified range, and so forth.

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