In standard economics, property rights refer to a bundle of entitlements defining an owner’s rights, privileges and limitations to the use of a resource. An efficient structure of property rights is said to have three characteristics: exclusivity (all the costs and benefits from owning a resource should accrue to the owner), transferability (all property rights should be transferable from one owner to another in a voluntary exchange) and enforceability (property rights should be secure from seizure or encroachment by others).
Conventional economic theory assumes that a resource owner with these three characteristics has a significant incentive to use that resource efficiently, because a loss of value of this resource represents a personal loss. In addition, clearly defining and assigning property rights should resolve environmental problems by internalising externalities and relying on incentives for private owners to conserve resources for the future. However, this assumes that it is possible to internalise all present and future environmental costs, that owners will have perfect information, that scale economies are manageable, transaction costs are bearable and that legal frameworks operate efficiently and without corruption. Strengthening markets and creating and strengthening property rights should reduce such problems. This is how the naïve story of standard economics goes.
Nevertheless, we know for instance that private owners discount the future; they value present revenue over future private and social benefits when they operate in a market system.
Property rights (Ostrom, 1990; Bromley, 1991) encompass a few basic categories:
• Private property rights are held by individuals and firms and can be transferred between them, most of the time through the exchange of money. Private property rights are the basis for capitalism to the point that it cannot exist without them.
• In state-property regimes, governments own and control property. This type of regime exists to varying degrees in all countries of the world. For example, parks and forests are frequently owned and preserved by governments. In communist countries, governments may own all resources. Problems can occur with state-property rights when the incentives of rule-makers for resource use diverge from the collective interest. For example, toxic and radioactive waste had accumulated in ex-USSR, because central plans which established national priorities favoured growth over environmental protection.
• Common-property regimes refer to properties jointly owned and used by a specified group of co-owners through formal (specific legal rules) or informal (protected by tradition or custom) entitlements. While there are numerous successful examples of common-property regimes, unsuccessful examples exist also. Population pressure and increased demand from outsiders undermine collective cohesion, sometimes leading to overexploitation and lower incomes for all.
Open-access regimes can be exploited on a first-come, first-served basis, because no individual or group has the legal power to restrict access. The consequences of open access have become popularly known as what Hardin (1968) misleadingly called ‘the Tragedy of the Commons’.
Bromley, D. (ed.) (1992) Making the commons work. San Francisco, The ICS Press.
Ostrom, E. (1990) Governing the commons: the evolution of institutions for collective action. Cambridge: Cambridge University Press.
For further reading:
Berkes, F. (1999) Sacred ecology: traditional ecological knowledge and resource management. Philadelphia, Taylor and Francis.
Hardin G. (1968) The tragedy of the commons. Science 162 1243–1248.
Heinsohn, G. and Steiger, O. (2003) The property theory of interest and money. In: Hodgson, G. M. (Ed.) Recent developments in institutional economics 484–517. Cheltenham: Edward Elgar.
Polanyi, K. (1944) The great transformation. Boston; Beacon Press.
The Encyclopedia of Earth [http://www.eoearth.org/]
This glossary entry is based on a contribution by Tom Bauler
EJOLT glossary editors: Hali Healy, Sylvia Lorek and Beatriz Rodríguez-Labajos