Getting Property Right(s) – Econlib
A commonly understood concept in economics is the idea of the tragedy of the commons. Without sufficient property rights, people will be encouraged to overuse the resources around them, for fear that others will do the same. Less commonly understood is the tragedy of the anticommons, a situation where resources have multiple owners, and no one is able to use it without unanimous consent, leading to resource underuse.
Both problems have roots in ineffective rules regarding private property. The former is a result of insufficient property rights. The latter is an issue of poorly structured property rights.
In any society, people have their own ideas about what they find important, and what ends they wish to pursue. If it isn’t clear who owns what, it becomes very challenging to coordinate action. For example, Jeremy cannot use the axe to build houses that Isaac is currently using to harvest lumber. Property rights are a helpful mechanism, chiefly, because of their power to help coordinate action.
However, property rights are also nuanced. It wouldn’t be tenable for one person to own all the drinking water, with the ability to exclude everyone else. Similarly, failing to let people own the goods and services they acquire makes trade impossible. Why would one create when they can just take? When thinking about a property rights regime, it is important to determine the degree and scope of property rights.
First, property rights may need to have a point at which they can be overruled. For instance, large developments may be susceptible to the holdout problem, which can reduce social coordination. This type of activity and use of property decreases total welfare. Other times, property protections may lead to property rights protecting against competition and innovation, reducing overall productivity. Importantly, externality ordinances do not protect against property devaluation from competition.
More importantly, property rights that are too weak lead to large decreases in production, well-being, and economic activity. If one is not able to expect to claim the fruits of their labor, there is little reason to work. Oftentimes those aiming to seize property, such as through eminent domain, tend to use it as a tool to extract rents from those weaker than themselves. Finally, weak property rights result in weak credit systems, discouraging innovation.
Another aspect of property rights is their scope. Many would agree that certain volumes of music blasted from a neighbor’s loudspeaker during the wee hours of the morning prevent those trying to sleep from taking advantage of their property. Yet, many would see moratoriums on music entirely as restricting people’s property as well. Making sure that rules are set up to encourage social coordination is essential to building desirable property rights.
This gets into the idea of nuisance. When someone is doing something with their property that reduces the value of other people’s property, the person causing the reduction in value may be restricted from doing so. This gets into the idea of nuisance exceptions. If someone is doing something that prevents others from enjoying their property, they might need to prove that what they are doing is socially productive or they may be liable for damages.
Correctly understood, property rights are a valuable tool for coordinating economic and social behavior. Figuring out their strength and scope is key to building productivity.
Isadore Johnson is a campus free speech advocate, an economics and philosophy student, and regional coordinator for Students for Liberty.
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