Property Rights Set of rights to engage in specific activities Also includes responsibilities Promote mutually beneficial exchanges when clearly defined

Poorly Defined Property Rights Create problems with resource allocation No incentive to conserve resources Insufficient incentive to produce resources

Poorly Defined Property Rights

Overuse of Resources with Poorly Defined Property Rights Example: 1800’s – buffalo vs. cattle Property rights and endangered species African elephants Property rights and resource allocation markets depend on clearly-defined property rights, where possible

The Coase Theorem In the absence of transactions costs, the allocation of resources will be independent of the assignment of property rights. Example: Confectioner vs. Doctor

The Coase Theorem Income effects Reciprocal nature of problem individuals care who gets initial assignment Reciprocal nature of problem Do property rights have to be predefined?

Small and Large Numbers Transactions costs make implementation of Pareto superior move difficult Small numbers = low transactions costs resources allocated with minimal government involvement Large numbers = high transactions costs resource allocation depends on assignment of property rights

Common Pool Problem Common ownership Solutions All owners have right to use resource; cannot exclude owners Owners have incentive to overuse resource Solutions Divide commonly owned resource Lease rights to a resource

Government versus Private Ownership Private ownership – lease rights to a resource Government ownership – access to resource controlled by government common pool problem does not exist environmentalists oppose leasing rights

Government versus Private Ownership Private ownership – supply and demand determine resource allocation Government ownership – resources allocated in proportion to political pressure

Government versus Private Ownership Under government ownership, political costs/ benefits to governmental decision-makers important Communal Ownership in Centrally Planned Economies Less productive than market oriented economies

Communal Ownership in Centrally Planned Economies Real World Example of Value of Property Rights Communal farming Centrally planned economies generally less productive than market oriented economies

Incentives of Government Managers Public managers have incentive to consider their private costs/benefits rather than public costs/benefits Inherent efficiency problems

Property Rights and Entitlements Property Rights – right to engage in certain activities requires others refrain from violating that right Example: free speech Entitlements – others actively provide scarce resources to holder of the right creates obligation on others to fulfill that entitlement Example: health care

Land Use Planning: An Application of Property Rights Theory Property rights and law of nuisance Justification for zoning laws created to codify land use policies specify how property in specific areas can be used method of protection produced by government

Restrictive Covenants Contract agreed to by all owners of land in an area Specifies uses of land Private contracts, voluntary agreement

21st Century Land Use Planning Zoning has broadened over time Land use planning transfers property rights from individuals to political process Reduced the rights of property owners Central planning of land use