4/27/20151 Property Rights Principle 4: Incentives Matter. Principle 5: Markets work with competition, incentives, information and property rights.

4/27/2015Unit 13: Property Rights2 After one hunting season No Property Rights

4/27/2015Unit 13: Property Rights3 After one hunting season With Property Rights

4/27/2015Unit 13: Property Rights4 What’s the Difference?

4/27/2015Unit 13: Property Rights5 The rights to use, control, and obtain the benefits from a good or service Property rights –exclusively held by an owner (clearly defined) –easily enforced –transferable at low cost at the owner’s discretion

4/27/2015Unit 13: Property Rights6 Property rights conserve and develop resources Your desk Your walls at home vs. your walls at school. Your dog and your lawn at home vs. your dog and the lawn at the city park.

4/27/2015Unit 13: Property Rights7 The Tragedy of the Commons A scarce resource owned in common is overused since no individual pays the full cost of using the resource.

4/27/2015Unit 13: Property Rights8 The Tragedy of the Commons The Llama Children

4/27/2015Unit 13: Property Rights9 Maximizing Family Income Number of llamas grazing on the commons (1) Price paid per llama (2) Average Income per Llama ($/year) (3) Total Family Income from grazing (4) Marginal Family income from grazing ($/year) (5) Income from bond (6) Total Family Income (7) Bernardo Luis Luisa Llama Ha Ha Ha

4/27/ Property owned in common will be overused. Establishing rights helps use the resource most efficiently.

4/27/2015Unit 13: Property Rights11 Examples Commonly owned European forests. Coca in South America Irish potato famine – landlords unsure of length of ownership pillage the land. Condominium dweller pays flat rate for utilities. Will he overuse the utilities? It’s nice to share, but it’s not efficient!

4/27/ Preserving Endangered Species Why don’t we see deer, elk, antelope, and bear roaming the streets of Yorba Linda?

4/27/2015Unit 13: Property Rights13 Two reasons some animals are disappearing. If the dead animal is valuable, and there are no property rights, if I don’t kill it, someone else will. To some, animals are nuisances and compete with humans for scarce land. –Bears, wolves, prairie dogs, alligators, crocodiles, mountain lions, bison, racoons

4/27/2015Unit 13: Property Rights14 It is easier to establish property rights if: the animal does not travel widely, the animal is contained in one nation, the animal does not “flow” as fish in streams, enforcement costs are not high, and people are willing to come together to preserve the species and to police themselves.

4/27/2015Unit 13: Property Rights15 Saving Elephants in Zimbabwe with Property Rights

4/27/2015Unit 13: Property Rights16 What’s the Difference?

4/27/2015Unit 13: Property Rights17 Some facts African wildlife is a food source, a nuisance to crops and a danger to humans. They look at them as “oversized, dangerous rodents.” From the villagers’ perspective, they are far more valuable dead than alive. (A villager can earn up to 100 times the average income by poaching ivory.) There is no incentive to preserve them and actual incentives to destroy them. “Just say no”?????

4/27/2015Unit 13: Property Rights18 Poachers and Villagers There are huge profits to be made from poaching. The villagers are glad to see the pests go. In Kenya where elephant hunting is banned, the population has gone from 40,000 to 4,000 in 20 years. In Zimbabwe, where hunting is permitted the elephant population is increasing. Why?

4/27/2015Unit 13: Property Rights19 Saving Wildlife through Property Rights CAMPFIRE program established property rights (incentives for villagers) and disincentives for hunters. –Permits to hunt elephants are sold at $10,000. –Villagers “own” elephants and get 75% of the revenue from the permits. –The meat belongs to the villagers. –The villagers are compensated for crop damage. –Average village income has increased by 25%.

4/27/2015Unit 13: Property Rights20 Saving Wildlife through Property Rights Results –In Zimbabwe, land dedicated to game conservation has grown from 12% to 17% –In Kenya, elephant population has declined from 40,000 to 4,000 in 20 years of banned hunting.

4/27/2015Unit 13: Property Rights21 Saving Wildlife through Property Rights What has happened to the benefits to villagers of preserving the elephants? What has happened to the costs of the villagers from preserving the elephants.

4/27/2015Unit 13: Property Rights22 How did the silkworm save the beaver from extinction? Europeans had overhunted them. French came to new world for beaver. Beaver increasingly scarce in America due to overhunting –with exception of Cheyenne territory where property rights were rigorously enforced Beaver saved by silkworm

4/27/2015Unit 13: Property Rights23 The near extinction of the bison Indians live on less and less land, increasing competition for bison on that land Bison hunted for robes and cows and calves were most desirable Number of bison killed –1874 – 20,000 –1875 – 100,000 Today, bison are raised for meat and tourism

4/27/2015Unit 13: Property Rights24 Native Americans Preserved Wildlife without Property Rights?? What happened to the Wooly Mammoth or the Sable Toothed Tiger?

4/27/2015Unit 13: Property Rights25 Will wildlife become extinct?.02% of all animal species exist today. There is an inevitable competition between humans and animals for land. Profits in illegal poaching are high. Banning ivory or other trade is not effective.

4/27/2015Unit 13: Property Rights26 Will wildlife become extinct?.02% of all animal species exist today. There is an inevitable competition between humans and animals for land. Profits in illegal poaching are high. Banning ivory or other trade is not effective.

4/27/2015Unit 13: Property Rights27 Will wildlife become extinct? Establishing property rights to valuable animals provides an incentive to preserve the animals.

4/27/2015Unit 13: Property Rights28 How to destroy endangered species Enforce the ESA (endangered species act) –If an endangered species is found on my land, I lose the right to deal with my land as I like. –I must take certain precautions to preserve the animal at my expense. –I have an incentive to s…., s…….., and s……..

4/27/2015Unit 13: Property Rights29 Cleaning the air efficiently, Policy 1 FirmTons of Pollution Emitted Cleanup Cost per ton Tons of Pollution Cleaned Under Policy 1 Cleanup cost under Policy 1 – Pollutants reduced by 30% A30$599 * $5 = $45 B20$466 * $4 = $24 C20$366 * $3 = $18 D20$266 * $2 = $12 E10$133 * $1 = $3 Total10030$102

4/27/2015Unit 13: Property Rights30 Cleaning the air efficiently, Policy 2 FirmTons of Pollution Emitted Cleanup Cost per ton Tons of Pollution Cleaned Under Policy 2 Cleanup cost under Policy 2 – Pollutants limited to 15 tons or less A30$51515 * $5 = $75 B20$455 * $4 = $20 C20$355 * $3 = $15 D20$255 * $2 = $10 E10$10$0 Total10030$120

4/27/2015Unit 13: Property Rights31 Cleaning the air efficiently, policy 3 FirmTons of Pollution Emitted Cleanup Cost per ton Tons of Pollution Cleaned Under Policy 3 Cleanup cost under Policy 3 – Market for Pollution Rights A30$50No cleanup B20$40No cleanup C20$30No cleanup D20$22020 * $2 = $40 E10$11010 * $1 = $10 Total10030$50

4/27/2015Unit 13: Property Rights32 Compare the Policies FirmTons of Pollution Emitted Cleanup Cost per ton Cleanup cost under Policy 1 – Pollutants reduced by 30% Cleanup cost under Policy 2 – Pollutants limited to 15 tons or less Cleanup cost under Policy 3 – Market for Pollution Rights A30$59 * $5 = $4515 * $5 = $75No cleanup B20$46 * $4 = $245 * $4 = $20No cleanup C20$36 * $3 = $185 * $3 = $15No cleanup D20$26 * $2 = $125 * $2 = $1020 * $2 = $40 E10$13 * $1 = $3$010 * $1 = $10 Total100$102$120$50

4/27/2015Unit 13: Property Rights33 Main Points Effective property rights have three characteristics: they are – 1) clearly defined, 2) effectively enforced, and 3) easily transferable. The Tragedy of the Commons occurs as a scarce resource owned in common is overused since no individual pays the full cost of using the resource. Elephants, bison, beaver, water, air, rain forests, are all examples of the Tragedy of the Commons. The Endangered Species Act can create negative secondary effects because it deprives people of their property rights.

4/27/2015Unit 13: Property Rights34 Main Points Establishing property rights for wildlife is easier if 1.the animal does not travel widely, 2.the animal is contained in one nation, 3.the animal does not “flow” as fish in streams, 4.enforcement costs are not high, 5.people are willing to form an agreement to preserve the species

4/27/2015Unit 13: Property Rights35 Main Points Establishing property rights by creating a market for pollution permits maximizes the efficiency of cleanup.