2. Property Rights Set of rights to engage in specific activities
Also includes responsibilities
Promote mutually beneficial exchanges when clearly defined

3. Poorly Defined Property Rights
Create problems with resource allocation
No incentive to conserve resources
Insufficient incentive to produce resources

4. Poorly Defined Property Rights

5. Overuse of Resources with Poorly Defined Property Rights
Example: 1800’s – buffalo vs. cattle
Property rights and endangered species
African elephants
Property rights and resource allocation
markets depend on clearly-defined property rights, where possible

6. The Coase Theorem
In the absence of transactions costs, the allocation of resources will be independent of the assignment of property rights.
Example: Confectioner vs. Doctor

7. The Coase Theorem Income effects Reciprocal nature of problem
individuals care who gets initial assignment
Reciprocal nature of problem
Do property rights have to be predefined?

8. Small and Large Numbers
Transactions costs make implementation of Pareto superior move difficult
Small numbers = low transactions costs
resources allocated with minimal government involvement
Large numbers = high transactions costs
resource allocation depends on assignment of property rights

9. Common Pool Problem Common ownership Solutions
All owners have right to use resource; cannot exclude owners
Owners have incentive to overuse resource
Solutions
Divide commonly owned resource
Lease rights to a resource

10. Government versus Private Ownership
Private ownership – lease rights to a resource
Government ownership – access to resource controlled by government
common pool problem does not exist
environmentalists oppose leasing rights

11. Government versus Private Ownership
Private ownership – supply and demand determine resource allocation
Government ownership – resources allocated in proportion to political pressure

12. Government versus Private Ownership
Under government ownership, political costs/ benefits to governmental decision-makers important
Communal Ownership in Centrally Planned Economies
Less productive than market oriented economies

13. Communal Ownership in Centrally Planned Economies
Real World Example of Value of Property Rights
Communal farming
Centrally planned economies generally less productive than market oriented economies

14. Incentives of Government Managers
Public managers have incentive to consider their private costs/benefits rather than public costs/benefits
Inherent efficiency problems

15. Property Rights and Entitlements
Property Rights – right to engage in certain activities
requires others refrain from violating that right
Example: free speech
Entitlements – others actively provide scarce resources to holder of the right
creates obligation on others to fulfill that entitlement
Example: health care

16. Land Use Planning: An Application of Property Rights Theory
Property rights and law of nuisance
Justification for zoning laws
created to codify land use policies
specify how property in specific areas can be used
method of protection produced by government

17. Restrictive Covenants
Contract agreed to by all owners of land in an area
Specifies uses of land
Private contracts, voluntary agreement

18. 21st Century Land Use Planning
Zoning has broadened over time
Land use planning transfers property rights from individuals to political process
Reduced the rights of property owners
Central planning of land use