Property rights (economics)

Property rights are theoretical socially-enforced constructs in economics for determining how a resource or economic good is used and owned. Resources can be owned by (and hence be the property of) individuals, associations or governments. Property rights can be viewed as an attribute of an economic good. This attribute has four broad components and is often referred to as a bundle of rights:

In economics, property is usually considered to be ownership (rights to the proceeds generated by the property) and control over a resource or good. Many economists effectively argue that property rights need to be fixed and need to portray the relationships among other parties in order to be more effective.

Property rights to a good must be defined, their use must be monitored, and possession of rights must be enforced. The costs of defining, monitoring, and enforcing property rights are termed transaction costs. Depending on the level of transaction costs, various forms of property rights institutions will develop. Each institutional form can be described by the distribution of rights.

The following list is ordered from no property rights defined to all property rights being held by individuals

Open-access property may exist because ownership has never been established, granted, by laws within a particular country, or because no effective controls are in place, or feasible, i.e., the cost of exclusion outweighs the benefits. The government can sometimes effectively convert open access property into private, common or public property through the land grant process, by legislating to define public/private rights previously not granted.

Implicit or explicit property rights can be created by regulating the environment, either through prescriptive command and control approaches (e.g. limits on input/output/discharge quantities, specified processes/equipment, audits) or by market-based instruments (e.g. taxes, transferable permits or quotas), and more recently through cooperative, self-regulatory, post-regulatory and reflexive law approaches. See the Conservation Property Right

It has been proposed by Ronald Coase that clearly defining and assigning property rights would resolve environmental problems by internalizing externalities and relying on incentives of private owners to conserve resources for the future. At common law nuisance and tort law allows adjacent property holders to seek compensation when individual actions diminish the air and water quality for adjacent landowners. Critics of this view argue that this assumes that it is possible to internalize all environmental benefits, that owners will have perfect information, that scale economies are manageable, transaction costs are bearable, and that legal frameworks operate efficiently.

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