Property Rights- Application in Modern Economics
Modern property rights regard possession as a right of legal individuals, corporations, or governments. Exceptions to the model of individual ownership include the public domain, to which there exists free access, and the commons, which belong to a given community.
Let's observe some intersting applications of the concept of modern property rights in the modern market:
Privatization is the process of transferring public rights into public rights. It is considered to be a possible solution of the Tragedy of the Commons because it simply puts an end to the existence of the commons. Once all costs internalized, the individuals take care of their own property in the best possible way, assuming all individuals have self- regarding preferences. Privatization does not always lead to a Pareto efficient outcome, though. The free competitive market is not always achieved, and even when it is attained, it is not always the most efficient decision ( consider the case of natural monopoly). For further application, please refer to the Games of the Common and Private Bunnies. [[1]]
Economic rent is a kind of profit that non-optimal output brings about. It should be distinguished from economic profit that is simple the total revenue minus the total cost because economic rent takes into account any opportunity cost, such as external social cost, created by the misuse of resources.
Entrepreneurship is the idea to make use of already existing property rights, and reorganize them as to make them more productive. Entrepreneurs emerged by taking assets out of open access to maximize their personal gains. In doing good for themselves, entrepreneurs enhance the total value of the social goods.
Centralized power is usually associated with the government institutions. The centralized power defines and enforces the property rights (the government does so through the police or the court, for example). Also, centralized power is an inextricable part of any system of property rights, though it is not always necessary. Government’s role in defining property rights has steadily been increasing as property rights evolved, especially with the augmenting importance of private property. Private property created a role for government to defend property, and once government started fulfilling this role, the existence of government to enforce property rights enhanced further development of property.
Open access vs exclusive rights the distinction between private property and open access commons is initially made by Gordon, and later used as the basis of The Tragedy of the Commons by Garrett Hardin. The contrast between exclusive ownership and commonalities is clear to every intelligent human being but the understanding of the problem does not lead to its technical solution. This is explained by game theorists with the classical case of overfishing- we all would put more effort than necessary, and eventually, there will be no fish left for anyone because of the external costs that we all suffer. So, assuming no credible contracts can be enforced, everything that we share as a community will be depleted, sooner or later.
Pollution is another tragedy of the modern (over) fisher because, just as other resources, clean air is limited. Does our self-concern lead our society to destruction? Don’t we internalize our costs sufficiently by breathing the air we pollute? Some people will say that air does not belong to anybody. On the contrary, air belongs to everybody. It is ours. It belongs to our society.
