Property Rights Bihhuang Jin Property Rights Give the
Property Rights Bih-huang Jin
Property Rights • Give the holder of the right the ability to use a resource • The ability to exclude others from using it • The right to sell or transfer the resource to another person
Property forms • Physical property – A plot of land – A can of Diet Coke • Intellectual property – A song – A manufacturing process
Scarcity Competition Discrimination Property rights are a set of rules which serves to allocate scarce goods among the competitors. No scarcity Property Rights need not exist.
Price ($) D 0 S Quantity As property rights should only be applied on scarce goods, goods free goods like air, seawater, in general cases, are not considered with property rights.
Two kinds of Property Rights Private Property Rights Common Property Rights 1) the exclusive right to use; 2) the exclusive right to income; 3) the right to transfer. A good is a common property if there is no delimitation or delineation of its use rights to any party.
Private Property Rights Houses Example 1~
Private property The owner can - exclude others from using it or getting into the house. - capture income from renting it out - freely transfer it to others by selling it.
Common Property Rights Beaches~ No one has the right to exclude others from using it and everyone is free to compete for its use.
• How the existence and form of property rights ot lack of property rights can affect social outcomes • Property rights a society chooses to establish will affect the allocation
Externalities and the Coase theorem • Externalities and non-optimal allocations – Case: smoke in restaurant • Mechanisms for determining socially optimal allocation – Using property right and mutually agreeable compensation to determine socially optimal allocation – Vickrey-Clark-Groves(VCG) mechanism induce truthtelling for polluters and for those suffered by pollution • Who is potentially harmed by the pollution • Who should be included in the mechanism – Cap and trade systems
Cap and trade systems(總量管制 與排放權交易) • Provide a number of pollution emissions permits • Allows the firms to trade these permits • Any firm emitting pollution must own a number of permits • Coase’s theorem: central idea behind the use of property right or tradable pollution permits to solve externalities problem – Establish marketable pollution rights minimize trsansaction costs and lead to socially optimal outcomes
The tragedy of the commons Garrett Hardin American Ecologist and Microbiologist (1915 -2003) Controversial figure Concerned with overpopulation Pro-abortion Pro-population control by government Pro-assisted suicide Anti-immigration Anti-international aid “The Tragedy of the Commons” Published in Science magazine 1968
The tragedy of the commons
A model for the commons • Suppose a village with N people, each villager owns one cow • If an x fraction of population N cows grazes on the commons, then the revenue per cow is equal to f(x) • Let’s suppose f(x)=c- x for some number c<1 • The total revenue is equal to f(x)(x. N) which is (cx-x 2) N • X*=c/2 maximum revenue is
Dissipation of rent 租值消散 An economic proposition which asserts that the potential rent is not captured in which private property rights are absent or attenuated.
Case 1 Drinking machine - Everyone has the right to use it. - Consumers make wasteful use of the filted water ~ e. g. washing hands. Sometimes it is convenient to wash hands with the filtered water which come out from the drinking machine. >> Although the cost of filtered water is more expensive than unfiltered water, the loss is shared by the whole society, >> thus for the individuals, the convenience outweighs the loss of inefficient use of the filtered water. The use value of the filtered water decline.
Case 2 Public Basketball court Transaction cost is increased No one has the right to exclude others from using it. Everyone is free to compete for its use. People form groups and take turns to have it used, thus sometimes queues are formed and time cost is increased for the consumers.
Case 3 Basketball court in a gymnasium Consumer who has booked it has the exclusive right to use it over a period of time, queues are not formed and the time for waiting can be used to do something more meaningful.
Case 4 Public toilets over-exploitation lowering its value - Everyone is free to use it. They are always dirtier than private toilets and the tissue paper and water are used inefficiently. $ MUV Deadweight loss MC to the public 0 Everyone can use it, the more people use the toilet, the dirtier it will be and more tissue paper & water are used. As the charge for additional use of them are zero, everyone will consume the tissue paper and water until his marginal use value diminishes to zero. Tissue
Avoiding the tragedy Hardin: appeals to individual conscience are bad because: • It discriminates against people of good conscience, and tends to eliminate them from the population. • It won’t work in the long run. Nature’s revenge. People without conscience with outbreed the others, and population will increase again eventually. • It is not psychologically healthy to force people to act against their own interests on the basis of conscience. So the only choice is “mutual coercion mutually agreed upon” • Limit the quantity of cattle to the socially optimal number – Charging a price or setting a fraction of cattle • Establish a property right – Setting the fraction of cattle allowed on the commons If there is externality as the actions of any one firm affect others, if no property rights, there is no compensation, and thus no reason to use the resource optimally
Intellectual Property Intellectual property refers to creations of the mind: inventions, literary and artistic works, and symbols, names, images, and designs used in commerce. Intellectual property is divided into two categories Industrial property inventions (patents), trademarks, industrial designs, and geographic indications of source Copyright literary and artistic works such as novels, poems and plays, films, musical works, artistic works
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