Sunday, 7 April 2013

Private, Communal & State Ownership

Private, Communal & State Ownership

Clarke & Kohler pp. 35-42, 59-62, 75-78
Demsetz, “Towards a theory of property rights” C&K pp. 65-68
  • Communal property: property rights in things can be held by communities. 
  • Public or state property: the state may hold all the property rights in a thing, and allocate the use of things to particular citizens by administrative rather than property rules. 
  • Do note that there is no consensus over what constitutes state and public property - there is not even the distinction between private and state. 
  • Ownerless things or ‘no property’ are objects in which no one has property rights so you might have a priviledge of benefiting from it but not a right. Examples include: free newspapers, radio signals, downloadable material from the internet. In Hunter v Canary Wharf, the House of Lord decided that terrestrial television signals were an example of this. 
  • Communal property: This is where not only do persons have a priviledge to use the resource but a right not be excluded from using it. They can be open e.g. everyone in the world is a member or closed/limited where membership of the ‘community’ is limited. 
  • Open access communal property is not necessarily state owned e.g. a public right of way which is open access communal property may be owned by a private induvidual. Another way in which open access communal property differs from state is that if the user has the right not be excluded from the state then we can say this is open access communal property as state property can use facilities and merely license users by permission to use it.
  • The difference between allocation and provision of resources is this - allocation of resources sees what type of ownership is present should the facility be limited to a certain class or is free for all to use or is the public entitled to use it. Provision on the other hand whether anyone should be responsible for ensuring that the resources are available in the first place. 
  • Limited access communal property can be distinguished from private co-ownership. Private co-owners are usually identified by their transmissable property interest. Members of a community, on the other hand, are identified in reference to a particular defining characteristic and no induvidual member has a transmissable interest. However, this is not a clear-cut analysis that is always correct as with all other aspects with law there are exceptions and distinct situations where this does not hold.
  • If a communal property is that which no one has a right to be excluded and priviledge to use but cannot exclude others then the opposite is Anticommons property. 
  • Anticommons property was first suggested by Frank Michealman a property which everyone has a right to exclude but no right or priviledge to use themselves.  This concept became useful when it was reformulated by Micheal Heller, who described it as a situation where ownership rights are distributed to multiple owners in such a way that each owner can exclude others and hence cannot actually use the resource for himself. He gives the example of a communal garden which all households are given to share, they all put locks to exclude others but one person themself cannot use it as that would require asking the other households to remove their locks and thus infringing their rights. 
  • Thats why in England only up to 4 people to co-own land as to avoid some of the problem of the anti common. Thats why even with communal problem its 4 people. Anti common is an externality of communal ownership. 
  • The concept of the anticommons property is significant because it allowed Heller to demonstrate why post-soviet Moscow was inefficient. After the state ownership of shops ceased, shops in Moscow still remained virtually empty of consumer goods. Kiosks tended to operate illegally outside on the street. This was because property rights in shops were distributed amoung a number of different bodies in an attempt to placate or compensate socialist-era stakehlders, shops thus had become anticommons property: no single induvidual was given full ownership rights. 
  • No property - the point is to not be regulated. You can’t say you have a right to it. Its just there - you can use it - you can’t own it as you can’t loose it.

59-62: Justifications for property rights
  • Lawrence Becker draws a distinction between two types of justifications: general and specific. General concerns why to have property rights in the first place and specific what sorts things people should own under what condition  (macro v micro).
  • Economist regard the institute of property as a means of solving these problems caused by scarcity of resources. 
  • Garrett Hardin put forward the justification of private property in “The Tradegy of Commons”. Where he essentially argued that open unowned properties will be overused and exploited as no person bares the direct cost of their actions on the land so if you have some form of ownership then there is someone who is responsible and bares the cost and thus ensures that this does not happen. He gives 2 examples: one of a pasture that is open to all and ends up overgrazed and useless and the second is pollution, he says people will not be careful about how much pollution and external cost they are adding to the land as they bare no cost of it.
  • There are several criticisms of Hardin’s justification. The first is that he fails to identify why private ownership is better than limited access communal ownership. This is probably because he does not make a distinction between no-property, open-access and limited access communal property. 
  • Demsetz looks at this proposal more closely saying that private property is not always the answer and that limited access communal property can be too. He says however the society this produces will be distinct from if there was private property and that regulation will tend to be through social convention as opposed to legal regulation. Furthermore, the nature of the resource and the prevailing environmental conditions will determine which type of ownership is more suited. 
  • Demsetz however failed to take sufficient account of state ownership which Hardin himself acknowledged that might provide some solution.
75-78: Yoram Barzel, Economic Analysis of Property Rights ‘The Conversion of the North Sea into Owned Property’
  • Barzel provides the example of when in 1958 the North Sea was divided and became private companies and as a result large development was seen in this area. 
  • Coase therom: the absense of transactions costs inhibiting the proper working of the market, the efficient allocation of resources will occur wherever the entitlement is first put. 
Demsetz, “Towards a theory of property rights” C&K pp. 65-68
  • The "main allocative function of property rights is the internalization of beneficial and harmful effects"
  • If you have a small community, this can work... but only if the cost of changing the grabber's behavior (i.e., transaction cost) is less than the harm the community is suffering. We must assume that this is a community of rational, economically-efficient people who will pay only if "cost < harm."
  • That is because the transaction costs of changing grabbers' behavior in large communities are higher than the externalities... thereby preempting internalization. 
  • In contrast, a "private property rights" system significantly reduces the externalities a society experiences. Let me illustrate using land as a type of property. Having exclusive ownership of a parcel of land incents one (by design) to manage it in such a way that society's interests are better addressed. For example, the owner now has access only to the portion of natural resources that are on his land. Therefore, by depleting his resources, the owner hurts only himself; the other parcel owners' resources are not affected. Therefore, the externalities of a given conduct are significantly reduced.
  • In a private-rights system, the transaction cost of reducing the externality is lower than under a communal-rights setup, because the private system recognizes a bundle of rights belonging to the neighbors. For example, if soot from the factory's pollution is deposited on a neighbor's land, the neighbor could sue the company for trespass. A private-rights system also implies a more efficient means of internalizing. For example, if the neighbors got together and pooled funds to persuade the company not to pollute, a private-rights system helps define which neighbors are required to be present in the negotiation 
  • At that point, society can introduce government intervention by either limiting someone's rights to use the land, or by requiring that certain types of property (e.g., factories) be government-owned and managed with society's broader needs in mind. Government intervention can further reduce externalities, though it may create others, such as limited freedom, limited enterprise, less-vibrant economy, etc. Demsetz did not elaborate on government regulation in the excerpt.
  • Demsetz's principles that civilized societies must be economically efficient and that an economically-efficient society has the duty to minimize externalities, aim to justify the transition from a communal-property legal system to one of private property rights and government regulation.

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