Property Rights Wednesday, Feb. 1. Property Rights Bundle of entitlements defining the owner’s...
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Transcript of Property Rights Wednesday, Feb. 1. Property Rights Bundle of entitlements defining the owner’s...
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)
Non-attenuated property rights are:• Completely specified• Exclusive• Transferable• Enforceable and enforced
How is property held?Who has rights of use?
• Private property• Common property• Public property• Open access (res nullius)
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
• What Ben is willing to accept to turn down the TV tells you how much he values sound
• What Jose is willing to accept to turn up the TV tells you how much he values quiet
• So– MB of sound to Ben = MC of quiet to Jose– MB of quiet to Jose = MC of sound to Ben
$
Q sound
MB of soundBen
$
Q quiet
JoseMB of quiet
Jose: MB of quiet = MC of quiet
Ben: MB of sound = MC of soundEfficiency
$
Q sound
MC of sound
MB of soundP
q
What if:
Jose lived there first, so Ben has to bribe him in order to watch TV at an agreed upon volume
$
Q sound
MC of sound
MB of soundP
q
What if:
Ben lived there first, so Jose has to bribe him in order to keep the TV at low volume
• 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
This is the Coase Theorem
sound
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.$
Q quiet
JoseMB of quiet
MB’
$
Q sound
MC of sound
MB of sound
P
q0
MB’
Ben doesn’t speak Spanish, Jose doesn’t speak English
Ben has to bribe, but the marginal benefit of the same volume is lower.
q1