Why is property important

A property right is the exclusive authority to determine how a resource is used, whether that resource is owned by government or by individuals. Society approves the uses selected by the holder of the property right with governmental administered force and with social ostracism. If the resource is owned by the government, the agent who determines its use has to operate under a set of rules determined, in the United States, by Congress or by executive agencies it has charged with that role.

Private property rights have two other attributes in addition to determining the use of a resource. One is the exclusive right to the services of the resource.

Thus, for example, the owner of an apartment with complete property rights to the apartment has the right to determine whether to rent it out and, if so, which tenant to rent to; to live in it himself; or to use it in any other peaceful way. That is the right to determine the use. If the owner rents out the apartment, he also has the right to all the rental income from the property.

That is the right to the services of the resources the rent. Finally, a private property right includes the right to delegate, rent, or sell any portion of the rights by exchange or gift at whatever price the owner determines provided someone is willing to pay that price. If I am not allowed to buy some rights from you and you therefore are not allowed to sell rights to me, private property rights are reduced. Thus, the three basic elements of private property are 1 exclusivity of rights to choose the use of a resource, 2 exclusivity of rights to the services of a resource, and 3 rights to exchange the resource at mutually agreeable terms.

The U. Supreme Court has vacillated about this third aspect of property rights. But no matter what words the justices use to rationalize such decisions, the fact is that such limitations as price controls and restrictions on the right to sell at mutually agreeable terms are reductions of private property rights.

Many economists myself included believe that most such restrictions on property rights are detrimental to society. Here are some of the reasons why.

Under a private property system the market values of property reflect the preferences and demands of the rest of society. No matter who the owner is, the use of the resource is influenced by what the rest of the public thinks is the most valuable use.

The reason is that an owner who chooses some other use must forsake that highest-valued use—and the price others would pay him for the resource or for the use of it.

The fundamental purpose of property rights, and their fundamental accomplishment, is that they eliminate destructive competition for control of economic resources. Well-defined and well-protected property rights replace competition by violence with competition by peaceful means.

The extent and degree of private property rights fundamentally affect the ways people compete for control of resources. With more complete private property rights, market exchange values become more influential. The personal status and personal attributes of people competing for a resource matter less because their influence can be offset by adjusting the price. In other words, more complete property rights make discrimination more costly.

Consider the case of a black woman who wants to rent an apartment from a white landlord. She is better able to do so when the landlord has the right to set the rent at whatever level he wants. Even if the landlord would prefer a white tenant, the black woman can offset her disadvantage by offering a higher rent.

A landlord who takes the white tenant at a lower rent anyway pays for discriminating. But if the government imposes rent controls that keep the rent below the free-market level, the price the landlord pays to discriminate falls, possibly to zero.

The rent control does not magically reduce the demand for apartments. The landlord, now unable to receive the full money price, will discriminate in favor of tenants whose personal characteristics—such as age, sex, ethnicity, and religion—he favors. Now the black woman seeking an apartment cannot offset the disadvantage of her skin color by offering to pay a higher rent.

Competition for apartments is not eliminated by rent controls. The restriction on private property rights reduces competition based on monetary exchanges for goods and services and increases competition based on personal characteristics. More generally, weakening private property rights increases the role of personal characteristics in inducing sellers to discriminate among competing buyers and buyers to discriminate among sellers.

Under socialism, government agents—those whom the government assigns—exercise control over resources. With property rights, Mr Jones is able to use the legal system to evict and reclaim the property that is his.

The culprit will be brought to court and will be forced to pass back the property to the rightful owner. The incentive to purchase a product diminishes. If the consumer has no right over the good they purchase, then anybody can freely take it.

As a result, trade halts and production is almost non-existent. Imagine a society where there is no consequence of theft — which would be the state the economy without property rights. Property rights guarantee freedom because control of production is spread among many acting bodies; nobody has complete power of resources. When governments own resources, a few people decide what to produce, how much to produce and for how much. Instead, millions of individuals own their own resources which they can use for whatever they see fit.

This allows for the right and freedom for individuals to pursue their own interests. At the same time, it provides an incentive for people to live, work, and save. Without private property, what incentive is there to work?

If the house you live in is not yours, then why make improvements? You may not own the house, but who does… the government? What would be the incentive to build the house in the first place? When there is no private property, there is no incentive other than subsistence. Private property gives individuals an incentive to earn, invest, and accumulate wealth.

It incentivizes people to earn as wealth can accumulate. That accumulation can be used for future consumption. Human wants are inherently infinite and private property allows humans to accumulate wealth and satisfy future wants. This can be for the purpose of our own consumption, but also the purpose of providing for our children. The importance of property rights can be extended to the ecosystem. What such rights do, is assign the right to a specific piece of land. Without such, it is a common resource that can be used and exploited by everyone.

For example, fishing is a known area that can potentially lead to overuse without property rights. If a fisher owns rights to a specific part of the sea, it is in their interest to ensure there will be sufficient fish in the long term. This results in limited resource extraction. A fisher will want to ensure they can make an earning tomorrow.

What these property rights do is allow for the long-term allocation of resources to be considered. Without such, individuals will rush to catch all of the fish in the sea before others are able to benefit.

Private property rights extend beyond the realms of physical property. There are also intellectual property rights to consider such as patents, copyrights, trademarks, and trade secrets. These protect ideas and business secrets, but how do these help the economy and society? Well, they provide the foundations for ideas to grow and develop. Are businesses going to spend years and millions on developing a new product or idea, only for it to be copied at a fraction of the cost?

It allows businesses to protect their trade secrets like Coca-Cola does with its recipe. Without protections like patents, investors are unwilling and unlikely to invest. IP rights incentivizes entrepreneurs to keep innovating and pushing for new developments and technology in the knowledge that they will be protected in the end.

Displacement as a result of infrastructure disproportionately affects marginalized communities. Part of that marginalization is weak property rights, another example from North America is the Dakota Pipeline. Property rights are a critical tool for women's empowerment. There are a number of studies showing how land rights have a positive impact on women. One recent publication based on USAID experience stated that in Tanzania, "women with strong land rights were 3 times more likely to work off-farm, earned up to 3.

The international community is increasingly recognizing the importance of property rights formalization. Land issues are increasingly arising in development literature and news. While the benefits of property rights formalization are numerous, it is not a societal panacea. While the aforementioned benefits can all be achieved through property rights formalization, reforms must be thoughtful. Do the reforms make sense in the context of the cultural norms and customs of the area in question?

With that said, are the customs in place all desirable? For instance, are there gender inequities that can be addressed by selectively establishing new norms? Is what is being formalized likely to strengthen society or seed conflict?

Mindful of these concerns, property rights formalization remains an important goal which will lead to more prosperous societies. Future of Land and Housing. By Patrick Kelley and Michael Graglia. Related Topics.