17 September 2011

Some highlights of David Schmidtz’ talk on the institution of property

Property is a bundle of rights (check out Wesley Hohfeld).

Property = right to use + right to forbid use by others.

[My comment: this seems insufficient as it doesn’t distinguish ownership from rent.]

Right to exclude is more fundamental than the rest of the rights in the bundle (all the others are conditional on it for their existence).

Property rule: others need your consent in order to use it.
Liability rule: if others use it without your permission they have to compensate (e.g. eminent domain).
Inalienability rule: can't use/sell at all (illegal to sell your kidney, prostitution, voluntary slavery contracts etc.).

Purpose of rights is to organize social behavior efficiently. Corollary of this: We should have the minimum number of rights that are able to achieve this because beyond that minimum we are inflicting unnecessary constraints.

Contracts = algorithms that grant permissions for the use of property.

A system of property rights is working when it facilitates:
- production
- trade
- creative destruction (i.e. experimentation)
- growth of businesses
- limits externalities
- minimizes transaction costs

[Question: Doesn’t the minimization of transaction costs cover all the other conditions?]