1. Law and Economics-Charles W. Upton Why Property Rights

2. Why do we want property rights?

3. Why Property Rights

5. A zero-sum game

6. Why Property Rights Though this table doesn’t show it, real resources are devoted to stealing and preventing theft

7. Why Property Rights Suppose theft can be prevented and people become 100% more productive

8. Why Property Rights Suppose theft can be prevented and people become 100% more productive A system of laws which prevent theft will be Hicks-Kaldor Optimal

9. Why Property Rights Of course that works only if everyone gains. Suppose the productivity gain is only 50%

10. Why Property Rights Of course that works only if everyone gains. Suppose the productivity gain is only 50% There will often be someone who does better by theft than by “honest work”. The government exists to compel those few to go along.

11. Why Property Rights Of course that works only if everyone gains. Suppose the productivity gain is only 50% There will often be someone who does better by theft than by “honest work”. The government exists to compel those few to go along. The cost of government, especially corrupt government, may exceed the benefits of property rights.

12. Why Property Rights Of course that works only if everyone gains. Suppose the productivity gain is only 50% There will always be someone who does better by theft than by “honest work”. The government exists to compel those few to go along. Establishing property rights will not be Pareto Optimum, though it may be Hicks-Kaldor Optimum.

13. Why Property Rights Of course that works only if everyone gains. Suppose the productivity gain is only 50% There will always be someone who does better by theft than by “honest work”. The government exists to compel those few to go along. Establishing property rights will not be Pareto Optimum, though it may be Hicks-Kaldor Optimum. Why not make side payments to the losers so they have an incentive to “buy in” to the system? May cut the cost of government.

14. Why Property Rights Lets put this in game theory terms Assume a 50% gain in productivity

15. Why Property Rights Lets put this in game theory terms Assume a 50% gain in productivity This is a payoff matrix showing the gains to the two parties depending on their “strategies”

16. Why Property Rights Note:Table assumes no gains from theft, just a waste of time

17. Why Property Rights Note:Table assumes no gains from theft, just a waste of time

18. Why Property Rights Note:Table assumes if only one thief, no gains from theft, just a waste of time

19. Why Property Rights Lets put this in game theory terms Assume a 50% gain in productivity If neither one accepts or both accept.

20. Why Property Rights Lets put this in game theory terms Assume a 50% gain in productivity If one but not both accepts. The government prevents theft, but the non participant does not stop trying.

21. Why Property Rights Here is the Nash Equilibrium

22. Why Property Rights Here is the Nash Equilibrium That is, neither party has an incentive to change

23. Why Property Rights Here is the Nash Equilibrium Lets see why

24. Why Property Rights Here is the Nash Equilibrium Lets see why

25. Why Property Rights Other Cases Could one party pay the cost of the government and force the other party into submission?

26. Why Property Rights Other Issues Could one party pay the cost of the government and force the other party into submission? –In any reasonable society, a thief is arrested, tried, convicted and punished. Taxpayers pay the cost.

27. Why Property Rights Other Issues Could one party pay the cost of the government and force the other party into submission? What guarantees that the government will act in the interests of farmers A and B and not become corrupt?

28. Why Property Rights Other Issues Could one party pay the cost of the government and force the other party into submission? What guarantees that the government will act in the interests of farmers A and B and not become corrupt? –That issue would take us well beyond this course.

29. Why Property Rights End ©2004 Charles W. Upton