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COASE THEOREM: A policy proposition, developed by Ronald Coase, that pollution and other externalities can be efficiently controlled through voluntary negotiations among the affected parties (polluters and those harmed by pollution). A key to the Coase theorem is that many pollution problems involve common-property goods that have no clear-cut ownership or property rights. With clear-cut property rights, "owners" would have the incentive to achieve an efficient level of pollution. This theorem states that it doesn't matter who receives the property rights, so long as someone does. Pollution can be reduced through voluntary negotiation by assigning private property rights to common-property resources. If common-property resources are privately owned, a market in property rights can be established. Owners then have the incentive to protect the quality of their resources.
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                           PROPERTY RIGHTS: The legal ownership of resources, which entitles the owners to receive the benefits or pay the costs associated with productive activities of the resources. Property rights can be owned individually (to the exclusion of others) or jointly by several members of society. The institution of private property is a form of property rights essential to capitalism. The notion of property rights came originally from the ownership of land (and the natural resources of the land), but it is equally important for all sorts of goods, commodities, and assets. Property rights apply not just to the ownership of land, but also to other resources, including labor and capital.For example: - Herb Haberstone, a hapless wheat farmer, has legal title to, and thus the property rights of, 160 acres of prime farmland. Herb can sell his land to a golf course developer if he so chooses and use the proceeds to retire in Florida. Or he can continue to grow wheat.
- Zeke Zabrowski, a dedicated factory worker, owns his labor resources (like all free humans). He can sell his labor services to the factory willing to pay the highest wage. He can then use this wage to purchase food, clothing, and shelter.
- Irene Issacson, a hard-working entrepreneur, owns a furniture rental business overflowing with assorted furniture available for renting. She can charge a respectable fee to prospective renters seeking to make use of her furniture, or she can sell it outright to prospective buyers. She can use the revenue generated to pay off her gambling debts.
When resource owners have clearly-defined property rights, resource allocation tends to be relatively efficient. Herb, Zeke, and Irene can direct their resources to the highest bidders, which presumably means to the highest valued uses. Moreover they do not have to let others use their resources unless they get payments that compensate for the opportunity costs they incur. ExcludabilityWhile it might seem as though property rights are a cut-and-dry issue--people own resources or they do not--controversy and conflict are always lurking around the corner. The reason is excludability, which is the ease of excluding potential buyers who do not pay from gaining ownership and control of a good. Excludability is easy for some goods and hard for others.- Goods in which nonpayers are easily excluded can have well-defined property rights. These are prime candidates for exchange through markets. Examples include hot fudge sundaes, pencils, and housing. They also go by the name private goods.
- Goods in which nonpayers are not easily excluded do not have well-defined property rights. These goods are not easily traded through markets. Examples include oceans, the atmosphere, and wilderness areas. These are either termed public goods or common-property goods.
Common-property goods are the more problematic of the two. In that they are technically owned by the public, they are in practice owned by no one in particular. Because these goods have no well-defined property rights, they cannot be efficiently exchanged through markets. The result is over use, pollution, and congestion. Defining Property RightsA solution to the inefficient use of common-property goods might seem to be giving, selling, or otherwise assigning these property rights to specific owners, who can then be responsible for their efficient use. There are, however, two problems with establishing property rights for common-property goods.- First, the assignment of property rights for common-property goods is physically difficult, if not impossible, which is why they are common property in the first place. It is virtually impossible for an individual to maintain control of these sorts of goods. If everyone has an equal share of the atmosphere, how would this property be protected? Could it be exchanged through markets? Could non-payers be excluded from using it? What could an owner do if a nonpayer used air without paying?
- Second, if property rights can be assigned, determining who receives the property rights is not an easy decision. Does every member of society receive an equal share? Do the wealthy get more? Do the poor get more? Should property rights be sold or just given away? The questions are endless and their answers are likely to cause debate, controversy, and possibly even bloody political revolutions.
Recommended Citation:PROPERTY RIGHTS, AmosWEB Encyclonomic WEB*pedia, http://www.AmosWEB.com, AmosWEB LLC, 2000-2022. [Accessed: December 7, 2022].
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