1. FNR 598R – AGEC 596R Discussion points from class on Jan. 14, 2003

2. What is property?

3. Physical characteristics Tangible –Property that has physical substance and can be touched Personal Real Intangible –Right or possession of a nonphysical or abstract nature that has value, such as a copyright, patent, license, trademark, or goodwill of a business. –Financial asset having no intrinsic value but representing value, such securities, notes, accounts receivable, etc.

4. Relational characteristics With entity holding physical possession With entity holding beneficial possession With legal system

5. Incidents of Ownership Right to use and manage Right to the income Right to the capital Right to possession Right to security Transmissibility (alienation) subject to transactions costs Absence of term Prohibition of harmful use – bear cost of ownership Residuary character Liability to execution – rights reduced by judgment of court

6. Other incidents What incidents don’t rise to the level of ownership?

7. Can incidents vary by property attribute?

8. Introduction to Property Rights Structure determines how an economy functions Structure evolves over time –Economic conditions –Political conditions –Non-market demands

9. What constitutes a property rights structure?

10. What is a “right”? P has a right to X asserts that –Others have a duty not to prevent P from doing X –Purpose of such a duty is to promote some interest of P’s, and –Although it is a matter of self-interest, P should feel no embarrassment about insisting upon and enforcing this duty Thus, a right is a legitimate claim that one person can make against another.

11. A right is a legitimate claim that one person can make against another Relationship among member of a society –Philosophy –Sociology –Economic Rights are reciprocal –Correlative to duties

12. A right is any demand that an individual interest should be protected or promoted, made from the individual’s own point of view, and accorded decisive moral importance.

13. Are property rights “agent relative”?

14. Our discussion will focus on so- called “third generation rights” Deal with communities or whole peoples –Minority language –National right to self-determination –Peace –Environmental integrity –Economic development First generation – traditional liberties Second generation – socio-economic claims

15. Environmental quality is a “public good” –Non-individualized goods –Hard to express the case for environmental integrity in traditional form of rights analysis

16. Basis of Current Structure Natural rights English common law U.S. constitution State constitutions

17. Property Rights Structure Economic characteristics keyed to achievement of efficiency –Universality – all attributes are defined and clear lines of ownership identified –Exclusivity – owner has exclusive rights –Enforceability – rights are enforceable –Transferability – rights can be transferred to others Basic types –Open access – no restriction on access –Common or community – access limited by members –Individual/Private – access limited to “owner” –Combinations – individual and community

18. Property Rights Structure May vary by component –Wildlife –Timber –Improvement –Tillage –Pasture –Movement across –Other

19. PR Structure Reflects Society Changes driven by –Social conflict and cooperation Rent seeking behavior –Increase in economic efficiency Maximize rent –Manner of operation Transfers to owners who can capture more rent

20. PR Structure Reflects Society Economic conditions –Relative scarcity of attribute –Transactions costs Transfer of rights Capture rent Protection or enforcement Social conditions –Population level –Income –Distribution of wealth

21. Some Basic Conditions Transaction costs – associated with transfer, capture, and protection of rights If transaction costs are positive –Rights to assets cannot be perfectly delineated –Possibility of “wealth capture” exists in exchanges

22. Some Basic Conditions Perfect delineation of rights requires owner and others potentially interested in the asset to possess full knowledge of all its valued properties.

23. Some Basic Conditions Divided ownership often increases wealth –Partition based on Transaction and production cost Constrain uncompensated exploitation Capacity to accommodate variation in income stream

24. Efficiency criteria Maximization of net value of an asset requires ownership pattern that can most effectively constrain uncompensated exploitation

25. History Monitor balance between common and private Use of commons –Open access Rent dissipated –Restricted access Users capture rent by voluntary use agreement Government captures part of rent to provide involuntary use agreement

26. History Balance determined by –Transaction costs Proportional to –Number of firms using the commons –Size of commons Exclusion costs –Individual units of agriculture dominate in Europe until about 8 th Century Waste land was a commons –Increased population led to common fields

27. Commons in United States Dominant until 20 th Century Remains dominate on at least one-third of land Returning to commons on private land –Capture environmental rent

28. Commons for Environmental Outputs Regulated production on private and public lands –Rent seeking –Economic efficiency

29. Commons for Environmental Outputs Private production of environmental outputs –Voluntary output on private land Complementary with owner’s objectives Purchased specifically for this purpose –Public acquisition Incentive based Purchased at cost

30. Role of U.S. Constitution Framework for redefining property rights structure –Takings must be compensated –Takings must be for a public good Society defines a takings in terms of –Decrease in rent captured

31. Role of U.S. Constitution Society defines “public good” in terms of –National security Strategic resources Human capital –Economic security Commerce

32. Role of U.S. Constitution Public health –Environmental quality Air Water –Social welfare –Economic welfare Species preservation Ecosystems health