01:220:395 Lecture Notes - Lecture 8: Marginal Cost, Externality

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2 May 2016
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2/16/2016
Property
- A bundle of rights over resources that the owner is free to exercise and whose
exercise is protected from interference from others
Property laws
- Possessory rights- allows people to use things and prevent others from using
them
- Transfer rights- allow people to transfer possessory rights
Legal concept of property
- Rights are impersonal: attached to property not people
- Owners are free to exercise property rights, or not
- No law forbids or requires owners to exercise property rights
- Other parties are forbidden by the courts to interfere with the owner’s exercise
their rights
Emergence of property rights
- Marginal benefits > marginal cost
- When a substantial proportion of the population recognizes that they will be
better off under a regime of property rights individual and collective pressure
will be bought to bear to develop them
Exceptions to property rights
- Negative Externalities: harm to others
- Rental provisions: some user rights
- Enterprise provisions: office space
- Emergency conditions
Reasons for property rights
- Incentives to work
- Incentives to maintain and improve property
- Incentives to transfer property
- Avoidance of duties
- Distribution of wealth
Property transfer
- Simultaneous transfer- consumer purchases immediate consumption
- Deferred transfer- promise to pay passage of time for final transaction
Exception to transfer rights
- Transfer can only convey the property rights that are legitimately owned
- Rights to stolen goods cannot be transferred
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