The importance of        Property Rights                     in economics
Murder is stealing                                        someones life.                                   “Coveting thy  ...
Why is stealing wrong?Stealing diminishes... the person stolen from has less left.The assumption underpinning this idea is...
Common Goods  There are things which dont                 A classic example of a common good                              ...
Free Goods  Free goods also dont belong to  anyone, but unlike common  goods they are non-  diminishable as they are not  ...
Guinness widget                                  Downloadable music                                                  Downl...
Is theft always an economic bad?We have learnt that property rights can make make a free good into a private good.We have ...
Watch this... (warning - 16+)http://youtu.be/xuxO6CZptckWhat are the economic reasons fordiscouraging the purchase of ille...
Nirvana probably werent ripping off Boston. The chorus is a          classic power riff which is used in many rock songs. ...
STOPBefore we go any further, check you understand the concepts we have covered so far.  Private Good                     ...
A good must meetTHE BASIS OF TRADE                                                                                        ...
The curious case of the lighthouseThere are goods which can be owned but cant be traded. This isbecause they are non-exclu...
What if the lighthouse ownerasked the passing ships to makea voluntary contribution?This would work until a shipdecided no...
SUMMARY Type of           Owned?        Excludable?        Diminishable? Provided by Good                                 ...
What type of good are each of the following?                         Air                   This                           ...
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Property rights

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Property rights

  1. 1. The importance of Property Rights in economics
  2. 2. Murder is stealing someones life. “Coveting thy neighbours wife” might be considered to be theft also. Tax avoidance is stealing from the It is sometimes said that government and from those who there only needs to be might have benefited from one law... do not steal. public spending.http://manolaw.blogspot.co.ukwww.examiner.comhttp://indianblogger.comwww.sodahead.com
  3. 3. Why is stealing wrong?Stealing diminishes... the person stolen from has less left.The assumption underpinning this idea is that the victim has aright over the property in question. They are said to own theproperty. These items are known as Private Goods.In Economics the idea of property rights is very important.http://artsammich.blogspot.co.uk/2011/09/stealing-apples.html
  4. 4. Common Goods There are things which dont A classic example of a common good are fish stocks in international waters; belong to anyone, so consuming no one is excluded from fishing, but them is not stealing. Economists as people withdraw fish the stocks for call these common goods. later fishermen are potentially depleted. To describe situations in which people withdraw resources to secure short-term gains without regard for the long-term consequences, the term tragedy of the commons was coined.. (Source: Wikipedia) Like private goods, common goods are diminishable. However, they are not excludable i.e. it is difficult to assert property rights over them and stop people taking what they want.http://www.fao.org/fishery/topic/13701/en
  5. 5. Free Goods Free goods also dont belong to anyone, but unlike common goods they are non- diminishable as they are not scarce. Consumption of a free good has zero opportunity cost to society. Is an idea a free good? Imagine your neighbour has bought some new garden furniture. It looks great. If you took the furniture it would be stealing; it is a private good. However, if you take the idea of getting some similar garden furniture you are not diminishing the neighbours possessions and they cant exclude you from copying the idea. Therefore the idea of the furniture is a free good. Or is it?http://en.wikipedia.org/wiki/File:Hudson_river_from_bear_mountain_bridge.jpg
  6. 6. Guinness widget Downloadable music Downloading a trackGuinness spent £5m does not diminish theinventing the widget. A amount left forwidget is a small plastic everyone else. Theball which flushes track is infinitelynitrogen through the drink replicable at effectivelywhen a can is opened no cost.making it taste more likedraught beer. Are digital products free goods? Whilst the idea of the widget and the digital tune are not scarce and can be reproduced infinitely without cost, they did require scarce resources to produce them in the first place. Therefore the law is often usedIs the idea of the to turn these free goods into private goods.widget a free good or a These laws are copyrights and patents.private good? They require us to treat unique ideas as intellectual property.
  7. 7. Is theft always an economic bad?We have learnt that property rights can make make a free good into a private good.We have also learnt, from a very young age, that stealing is bad. Therefore we canconclude that stealing other peoples (legally protected) ideas or digital products iswrong. In economics, this is a normative assertion. However, we are not moralphilosophers so lets leave behind morality and explore what actual damage theftdoes, or does not, cause in an economy.Question QuestionWhy is it important in economics to For how long should other firmshave laws which turn free goods, be prevented from copyinglike Guinness widget idea, into Guinness widget idea?private goods?The economic answer to this is all about Guinness should be allowed to ownincentives. What incentive would there the idea for long enough to make abe for Guinness to spend £5m on good return on their investment. Afterdeveloping the widget if every other firm that time, the law allows other firms tocould immediately copy the idea? copy the design. In other words theHowever, if this idea is theirs forever they good is no longer private, it reverts tocan take advantage of this by charging an being a free good. The widget wasinflated price to consumers, which we Guinness intellectual property for 5dont want. This begs the next question... years.
  8. 8. Watch this... (warning - 16+)http://youtu.be/xuxO6CZptckWhat are the economic reasons fordiscouraging the purchase of illegalcopies of films?Why is it necessary to make advertsto discourage people?This IT Crowd satire on the original advert by the Federation Against CopyrightTheft (FACT) is a form of theft in itself. The central ideas and style of the originalvideo and reproduced. Somehow it doesnt feel like theft though. Why not?Sounds Like Teen Spirit...?Watch this classic Nirvana video http://youtu.be/hTWKbfoikeg and listenparticularly to the chorus. Now listen to this.... http://youtu.be/SSR6ZzjDZ94This hit by the band Boston preceded Nirvanas Smells Like Teen Spirit bymany years. It would appear that the chord structure of the Nirvana song isborrowed from More Than a Feeling.
  9. 9. Nirvana probably werent ripping off Boston. The chorus is a classic power riff which is used in many rock songs. However, Kurt Cobain, lead singer of Nirvana, admitted this...Theft or “I was trying to write the ultimate pop song. Iinspiration? was basically trying to rip off the Pixies. I have to admit it. When I heard the Pixies for the first time, I connected with that band so heavily that I should have been in that band—or at least a Pixies cover band. We used their sense of dynamics, being soft and quiet and then loud and hard” Source: http://en.wikipedia.org/wiki/Smells_Like_Teen_Spirit In the Guinness example, by protecting the idea and making it the intellectual property of the firm we were ensuring there was an incentive for innovation. In the arts we must also protect property, for example stopping illegal downloading or piracy. However, we must also make sure we dont discourage future innovation by preventing artists being inspired by past work. http://www.ipad-wallpapers.us/kurt-cobain-ipad-wallpaper/
  10. 10. STOPBefore we go any further, check you understand the concepts we have covered so far. Private Good Free Good Diminishability Incentive to Patent Innovate Excludability Common Property GoodPiracy Rights Copyright Tragedy of the Commons Intellectual Property
  11. 11. A good must meetTHE BASIS OF TRADE three conditions for it to be trade-able (i.e. to make it possible for the good to be exchanged for money) 1. It must be own-able (i.e. property rights can be asserted) 2. It must be excludable (i.e. you must be able to stop people just taking it) 3. It must be scarce A Private Good can be provided through a market (i.e. not freely as it meets all three conditions. available to anyone) A Common Good cannot be traded as it is not Markets (where excludable or owned (although it is scarce). people go to trade) can be used to A Free Good cannot be provided through a market allocate goods which as it is not scarce or excludable. meet these conditions. http://www.bilaterals.org/multimedia/photos/Australia%20and%20New%20Zealand/Andrew_Weldon_Free_Trade_Cartoon.jpg.php
  12. 12. The curious case of the lighthouseThere are goods which can be owned but cant be traded. This isbecause they are non-excludable. The owner of a lighthouse cannot stop passing ships benefiting from the warning light. The good is also non- diminishable as one ships consumption of the service does not stop another ship benefiting. A lighthouse cannot charge for its services. A lighthouse is a Public Good http://www.taracasa.com/archives/1611
  13. 13. What if the lighthouse ownerasked the passing ships to makea voluntary contribution?This would work until a shipdecided not to pay and benefit fromthe lighthouse anyway! If the othership-owners found out then theymight decide to stop paying too andthe whole system would fall apart.This is known as the free-riderproblem. It is the reason thatpublic goods cant be providedthrough a market.
  14. 14. SUMMARY Type of Owned? Excludable? Diminishable? Provided by Good a market?PRIVATE YES YES YES YESGOODFREE GOOD NO NO NO NOCOMMON NO NO YES NOGOODPUBLIC YES NO NO NOGOODMemory technique...Bill is a fisherman. Every day he sets out to sea to fish (the fish stocks are a CommonGood). The fish he catches are now his (a Private Good). His friend Jake thinks Billsway of making a living is a good idea (the idea is a Free Good). He buys his own ship.Both Bill and Jake are kept safe by the lighthouse which guides them away from therocks (the lighthouse is a Public Good). Soon, all the villagers are copying Bill and Jakeand the fish stocks begin the dwindle (the Tragedy of the Commons).
  15. 15. What type of good are each of the following? Air This presentation Roads Software Sunshine Free drink with every meal A forestOil reserves A free App A park

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