Economics and Property Rights

By Williams, Walter E. | Freeman, January/February 2008 | Go to article overview

Economics and Property Rights


Williams, Walter E., Freeman


Economic theory does not operate in a vacuum. Institutions, such as the property-rights structure, do not change economic theory but influence how the theory manifests itself. Sinnlarly, the law of gravity is not repealed when a parachutist floats gently down to earth. The parachute simply determines how the law of gravity manifests itself. Failure to recognize the effect and role that different property-rights structures play in the outcomes we observe leads to faulty analysis.

Think about several questions. Which oyster bed will yield larger, more mature oysters-a publicly owned or privately owned bed? Why is it that herds of cows are not threatened with extinction while buffalo were? Who will care for a house better-a renter or an owner? Finally, why are some societies richer than others?

The answer to each question has to do with the property-rights structure, whether property rights are held privately or communally. When property rights are held privately, the person who is deemed the owner has certain rights that he expects will be enforced. Among those rights are the right to keep, acquire, use, exclude from use, and dispose of property as he deems appropriate in a manner that does not infringe similar rights held by others. The owner also has the right to transfer title to the property and otherwise benefit from its use. When rights to property are held communally, such a bundle of rights does not exist. In general, the key difference between privately and communaly held property rights is that individuals do not have the right to exclude others from use, and they do not have the right to transfer title.

Let us turn to our questions. In a publicly or communally owned oyster bed, everyone has a claim. For a person to assert his claim, he has to capture the oysters. This leads to overfishing because the person who tosses back an immature oyster does not benefit himself. He benefits someone else who will keep the oyster.

It's a different story with a privately owned oyster bed. The owner need not capture the oysters in order to assert his claim and can allow the oysters to mature.

It's the same principle with buffalo and other wildlife that's publicly owned. However imperfectly, governments attempt to solve this property-rights problem with hcenses, fishing and hunting seasons, and limits on catch and size. The difference in outcomes, based on the property-rights structure, is a no-brainer. As Thomas Sowell writes in Knowledge and Decisions, "It is precisely those things which belong to 'the people' which have historically been despoiled-wild creatures, the air, and waterways being notable examples. This goes to the heart of why property rights are socially important in the first place. Property rights mean self-interested monitors. No owned creatures are in danger of extinction. No owned forests are in danger of being leveled. No one kills the goose that lays the golden egg when it is his goose."

Aristotle said, "What is common to many is taken least care of, for all men have greater regard for what is their own than for what they possess in common with others." What he is saying is that private property rights force people to internalize externalities, which is just a fancy way of saying that a person's wealth is held hostage to his doing the "socially responsible" thing-wisely using the planet's scarce resources. Private property rights induce the homeowner to take into account the effect of his current use of the property on its future value. That is why we expect a homeowner to give better care to a house than a renter. A homeowner has a greater stake in what a house is worth ten or 20 years later. An owner would more likely make sacrifices and take the kind of care that lengthens the usable life of the house. He reaps the reward from doing so, or pays the penalty for not doing so. Owners require security deposits against damage to make renters share some of their interests in the property. …

The rest of this article is only available to active members of Questia

Sign up now for a free, 1-day trial and receive full access to:

  • Questia's entire collection
  • Automatic bibliography creation
  • More helpful research tools like notes, citations, and highlights
  • Ad-free environment

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items

Items saved from this article

This article has been saved
Highlights (0)
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

Citations (0)
Some of your citations are legacy items.

Any citation created before July 30, 2012 will labeled as a “Cited page.” New citations will be saved as cited passages, pages or articles.

We also added the ability to view new citations from your projects or the book or article where you created them.

Notes (0)
Bookmarks (0)

You have no saved items from this article

Project items include:
  • Saved book/article
  • Highlights
  • Quotes/citations
  • Notes
  • Bookmarks
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

1

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited article

Economics and Property Rights
Settings

Settings

Typeface
Text size Smaller Larger Reset View mode
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Full screen

matching results for page

Cited passage

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited passage

Welcome to the new Questia Reader

The Questia Reader has been updated to provide you with an even better online reading experience.  It is now 100% Responsive, which means you can read our books and articles on any sized device you wish.  All of your favorite tools like notes, highlights, and citations are still here, but the way you select text has been updated to be easier to use, especially on touchscreen devices.  Here's how:

1. Click or tap the first word you want to select.
2. Click or tap the last word you want to select.

OK, got it!

Thanks for trying Questia!

Please continue trying out our research tools, but please note, full functionality is available only to our active members.

Your work will be lost once you leave this Web page.

For full access in an ad-free environment, sign up now for a FREE, 1-day trial.

Already a member? Log in now.