Question

Property rights must have certain characteristics if they are to lead to efficient resource use. List these characteristics and explain each briefly.

Answer 1

Conventional economic theory suggests that a resource owner with these three characteristics has a major incentive to use that resource effectively, because a loss of value of that resource constitutes a personal loss. Furthermore, by internalizing externalities and relying on incentives for private owners to conserve resources for the future, clearly defining and assigning property rights should solve environmental problems. Nevertheless, this implies that all current and future environmental costs can be internalized, that owners will have perfect information, that economies of scale can be controlled, transaction costs can bearable and legal frameworks will operate efficiently

Private property rights are owned by individuals and companies, and may be exchanged between them via money exchange most of the time. Private property rights are the basis of capitalism, to the extent that without them it can not exist. Governments own and control property within state-owned regimes. Such form of system occurs in all countries of the world, to varying degrees. Parks and woods, for example, are often protected and conserved by governments. In communist countries all resources may be owned by governments. Problems with state property rights may occur when the interests of resource-using rule makers diverge from the collective interest.

Common-property regimes refer to properties owned jointly and used by a specific groupof co-owners through formal (specific legal rules) or informal (traditionally or custom-protected) entitlements. While numerous successful examples of common-property regimes exist, there are also unsuccessful examples. Population pressure and rising external demand disrupt social stability, often resulting in overexploitation and lower incomes for everyone.