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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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Presentation Transcript
property rights

Property Rights

Wednesday, Feb. 2

property rights2
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
Non-attenuated property rights are:
  • Completely specified
  • Exclusive
  • Transferable
  • Enforceable and enforced
how is property held who has rights of use
How is property held?Who has rights of use?
  • Private property
  • Common property
  • Public property
  • Open access (res nullius)
coase theorem
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
slide6

$

Consumer surplus

P

MB

q

Q

slide7

$

MC

P

Producer surplus

q

Q

slide9

Two roommates:

Jose wants to study, Ben wants to watch TV

$

Ben

MB of sound

Q sound

slide10

$

Jose

MB of quiet

Q quiet

slide11

For Ben: MB of sound = MC of quiet

For Jose: MB of quiet = MC of sound

slide12

$

$

Jose

MB of quiet

Ben

MB of sound

Q sound

Q quiet

slide13

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

slide14

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

this is the coase theorem
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

slide17

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

slide18

$

$

Jose

MB quiet = MC sound

p0

Ben

MB of sound

q0

q1

Q sound

Q quiet

slide19

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

slide20

$

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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