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Property Rights

Property Rights. Wednesday, Feb. 2. Property Rights. Bundle of entitlements defining the owner’s rights, privileges, and limitations for use of a resource (Tietenberg)

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Property Rights

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  1. Property Rights Wednesday, Feb. 2

  2. Property Rights • Bundle of entitlements defining the owner’s rights, privileges, and limitations for use of a resource (Tietenberg) • Rules that specify both the proper relationships among people with respect to the use of things and the penalties for violating those proper relationships (Randall)

  3. Non-attenuated property rights are: • Completely specified • Exclusive • Transferable • Enforceable and enforced

  4. How is property held?Who has rights of use? • Private property • Common property • Public property • Open access (res nullius)

  5. Coase Theorem: • When property rights are fully specified, assigned, transferable, divisible, secure and transaction costs are zero • Trade eliminates the pareto relevant externality • Resource allocation is invariant to the initial assignment of resources

  6. $ Consumer surplus P MB q Q

  7. $ MC P Producer surplus q Q

  8. Total welfare = PS + CS $ S P D Q q

  9. Two roommates: Jose wants to study, Ben wants to watch TV $ Ben MB of sound Q sound

  10. $ Jose MB of quiet Q quiet

  11. For Ben: MB of sound = MC of quiet For Jose: MB of quiet = MC of sound

  12. $ $ Jose MB of quiet Ben MB of sound Q sound Q quiet

  13. Jose lived there first, so Ben has to bribe him in order to watch TV at an agreed upon volume $ MC of sound P MB of sound q Q sound

  14. Ben lived there first, so Jose has to bribe him in order to keep the TV at low volume $ MC of sound P MB of sound q Q sound

  15. MB and MC curves drawn as linear for simplification $ MC of sound P MB of sound q Q sound

  16. This is the Coase Theorem • When property rights are fully specified, assigned, transferable, divisible, secure and transaction costs are zero (and zero income effect) • Trade eliminates the externality • Final resource allocation is invariant to initial assignment of resources/rights sound

  17. Ben doesn’t speak Spanish, Jose doesn’t speak EnglishJose has to bribe but the marginal benefit of each additional amount of quiet is lower. $ Jose MB of quiet MB’ Q quiet

  18. $ $ Jose MB quiet = MC sound p0 Ben MB of sound q0 q1 Q sound Q quiet

  19. Ben doesn’t speak Spanish, Jose doesn’t speak English Ben has to bribe, but the marginal benefit of the same volume is lower. $ MB of sound MC of sound MB’ P q1 q0 Q sound

  20. $ MC Jose has to pay Ben, transaction costs are smaller MC’ p0 MB q0 q1 Q sound $ Ben has to pay Jose, transaction costs are higher MB MC MB’ p0 q0 = q0 q1 > q1 q1 q0 Q sound

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