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04/18/23 1
Property Rights
Principle 4: Incentives Matter.Principle 5: Markets work with
competition, incentives, information and property rights.
04/18/23 Unit 13: Property Rights 5
• The rights to use, control, and obtain the benefits from a good or service
• Property rights – exclusively held by an owner (clearly
defined)– easily enforced– transferable at low cost at the owner’s
discretion
04/18/23 Unit 13: Property Rights 6
Property rights conserve and develop resources
• Your desk
• Your walls at home vs. your walls at school.
• Your dog and your lawn at home vs. your dog and the lawn at the city park.
04/18/23 Unit 13: Property Rights 7
The Tragedy of the Commons
• A scarce resource owned in common is overused since no individual pays the full cost of using the resource.
04/18/23 Unit 13: Property Rights 9
Maximizing Family Income
Number of llamas
grazing on the
commons(1)
Price paid per
llama(2)
Average Income
per Llama
($/year)(3)
Total Family Income from
grazing(4)
Marginal Family income
from grazing($/year)
(5)
Income from
bond(6)
Total Famil
y Income
(7)
Bernardo 1 130 30 30 30 45 75
Luis 2 125 25 50 20 36 86
Luisa 3 120 20 60 10 27 87
Llama Ha 4 115 15 60 0 18 78
Ha 5 110 10 50 -10 9 59
Ha 6 105 5 30 -20 0 30
04/18/23 10
Property owned in common will be overused.
Establishing rights helps use the resource most efficiently.
04/18/23 Unit 13: Property Rights 11
Examples
• Commonly owned European forests.
• Coca in South America
• Irish potato famine – landlords unsure of length of ownership pillage the land.
• Condominium dweller pays flat rate for utilities. Will he overuse the utilities?
• It’s nice to share, but it’s not efficient!
04/18/23 12
Preserving Endangered Species
Why don’t we see deer, elk, antelope, and bear roaming the
streets of Yorba Linda?
04/18/23 Unit 13: Property Rights 13
Two reasons some animals are disappearing.
• If the dead animal is valuable, and there are no property rights, if I don’t kill it, someone else will.
• To some, animals are nuisances and compete with humans for scarce land. – Bears, wolves, prairie dogs, alligators,
crocodiles, mountain lions, bison, racoons
04/18/23 Unit 13: Property Rights 14
It is easier to establish property rights if:
• the animal does not travel widely,• the animal is contained in one nation, • the animal does not “flow” as fish in
streams,• enforcement costs are not high, and• people are willing to come together to
preserve the species and to police themselves.
04/18/23 Unit 13: Property Rights 17
Some facts
• African wildlife is a food source, a nuisance to crops and a danger to humans. They look at them as “oversized, dangerous rodents.”
• From the villagers’ perspective, they are far more valuable dead than alive. (A villager can earn up to 100 times the average income by poaching ivory.)
• There is no incentive to preserve them and actual incentives to destroy them.
• “Just say no”?????
04/18/23 Unit 13: Property Rights 18
Poachers and Villagers
• There are huge profits to be made from poaching.
• The villagers are glad to see the pests go. • In Kenya where elephant hunting is banned,
the population has gone from 40,000 to 4,000 in 20 years.
• In Zimbabwe, where hunting is permitted the elephant population is increasing.
• Why?
04/18/23 Unit 13: Property Rights 19
Saving Wildlife through Property Rights
• CAMPFIRE program established property rights (incentives for villagers) and disincentives for hunters. – Permits to hunt elephants are sold at $10,000.– Villagers “own” elephants and get 75% of the
revenue from the permits.– The meat belongs to the villagers.– The villagers are compensated for crop damage. – Average village income has increased by 25%.
04/18/23 Unit 13: Property Rights 20
Saving Wildlife through Property Rights
• Results– In Zimbabwe, land dedicated to game
conservation has grown from 12% to 17%– In Kenya, elephant population has declined
from 40,000 to 4,000 in 20 years of banned hunting.
04/18/23 Unit 13: Property Rights 21
Saving Wildlife through Property Rights
• What has happened to the benefits to villagers of preserving the elephants?
• What has happened to the costs of the villagers from preserving the elephants.
04/18/23 Unit 13: Property Rights 22
How did the silkworm save the beaver from extinction?
• Europeans had overhunted them.
• French came to new world for beaver.
• Beaver increasingly scarce in America due to overhunting – with exception of Cheyenne territory where
property rights were rigorously enforced
• Beaver saved by silkworm
04/18/23 Unit 13: Property Rights 23
The near extinction of the bison
• Indians live on less and less land, increasing competition for bison on that land
• Bison hunted for robes and cows and calves were most desirable
• Number of bison killed– 1874 – 20,000– 1875 – 100,000
• Today, bison are raised for meat and tourism
04/18/23 Unit 13: Property Rights 24
Native Americans Preserved Wildlife without Property Rights??
What happened to the Wooly Mammoth or the Sable Toothed Tiger?
04/18/23 Unit 13: Property Rights 25
Will wildlife become extinct?
• .02% of all animal species exist today.
• There is an inevitable competition between humans and animals for land.
• Profits in illegal poaching are high.
• Banning ivory or other trade is not effective.
04/18/23 Unit 13: Property Rights 26
Will wildlife become extinct?
• .02% of all animal species exist today.
• There is an inevitable competition between humans and animals for land.
• Profits in illegal poaching are high.
• Banning ivory or other trade is not effective.
04/18/23 Unit 13: Property Rights 27
Will wildlife become extinct?
• Establishing property rights to valuable animals provides an incentive to preserve the animals.
04/18/23 Unit 13: Property Rights 28
How to destroy endangered species
• Enforce the ESA (endangered species act)– If an endangered species is found on my
land, I lose the right to deal with my land as I like.
– I must take certain precautions to preserve the animal at my expense.
– I have an incentive to s…., s…….., and s……..
04/18/23 Unit 13: Property Rights 29
Cleaning the air efficiently, Policy 1
Firm Tons of
Pollution
Emitted
CleanupCost per
ton
Tons of Pollution
Cleaned UnderPolicy 1
Cleanup cost under Policy 1
–Pollutants
reduced by 30%
A 30 $5 9 9 * $5 = $45
B 20 $4 6 6 * $4 = $24
C 20 $3 6 6 * $3 = $18
D 20 $2 6 6 * $2 = $12
E 10 $1 3 3 * $1 = $3
Total 100 30 $102
04/18/23 Unit 13: Property Rights 30
Cleaning the air efficiently, Policy 2
Firm Tons of
Pollution
Emitted
Cleanup
Cost per
ton
Tons of Pollution
Cleaned Under
Policy 2
Cleanup cost under Policy
2 – Pollutants limited to 15 tons or
less
A 30 $5 15 15 * $5 = $75
B 20 $4 5 5 * $4 = $20
C 20 $3 5 5 * $3 = $15
D 20 $2 5 5 * $2 = $10
E 10 $1 0 $0
Total 100 30 $120
04/18/23 Unit 13: Property Rights 31
Cleaning the air efficiently, policy 3
Firm Tons of PollutionEmitted
CleanupCost per
ton
Tons of Pollution
Cleaned Under
Policy 3
Cleanup cost under
Policy 3 – Market for
Pollution Rights
A 30 $5 0 No cleanup
B 20 $4 0 No cleanup
C 20 $3 0 No cleanup
D 20 $2 20 20 * $2 = $40
E 10 $1 10 10 * $1 = $10
Total 100 30 $50
04/18/23 Unit 13: Property Rights 32
Compare the PoliciesFirm Tons
ofPolluti
on Emitted
Cleanup
Cost per
ton
Cleanup cost
under Policy 1
–Pollutantsreduced by
30%
Cleanup cost
under Policy 2
– Pollutantslimited to
15tons or less
Cleanup cost
under Policy 3
– Market forPollution Rights
A 30 $5 9 * $5 = $45
15 * $5 = $75
No cleanup
B 20 $4 6 * $4 = $24
5 * $4 = $20
No cleanup
C 20 $3 6 * $3 = $18
5 * $3 = $15
No cleanup
D 20 $2 6 * $2 = $12
5 * $2 = $10
20 * $2 = $40
E 10 $1 3 * $1 = $3 $0 10 * $1 = $10
Total 100 $102 $120 $50
04/18/23 Unit 13: Property Rights 33
Main Points
• Effective property rights have three characteristics: they are– 1) clearly defined, 2) effectively enforced, and 3) easily
transferable.• The Tragedy of the Commons occurs as a scarce
resource owned in common is overused since no individual pays the full cost of using the resource.
• Elephants, bison, beaver, water, air, rain forests, are all examples of the Tragedy of the Commons.
• The Endangered Species Act can create negative secondary effects because it deprives people of their property rights.
04/18/23 Unit 13: Property Rights 34
Main Points
• Establishing property rights for wildlife is easier if
1. the animal does not travel widely,
2. the animal is contained in one nation,
3. the animal does not “flow” as fish in streams,
4. enforcement costs are not high,
5. people are willing to form an agreement to preserve the species