2.1 Property Rights as a Basis for Economic Exchange and Organisation Flashcards Preview

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Flashcards in 2.1 Property Rights as a Basis for Economic Exchange and Organisation Deck (17):

Define the concept ‘property right’ from a physicalist perspective and a social perspective (slides; Bromley 1991 Part 1)

Property rights are socially defined relations 

“property is not an object such as land, but rather is a right to a benefit stream that is only as secure as the duty of all others to respect the conditions that protect that stream” (Folie 2)


Antwort nicht vollständig !!


What does “triadic relationship” mean in the context of property rights? Use an example (slides; Bromley 1991 Part 1)

The “triatic relationship” is referred by Bromley (1991) as this social relationship involving benefit, rights and duties. (???)


  • Environmental problems – because they are usually a matter of the private interest of Alpha versus the private interest of Beta – are more properly regarded as triadic matters; Alpha, Beta, and the state. ... the state must do something, for to do nothing is to side with the party protected by the status quo property arrangements (Folie 10)

A triadic relationship in the context of property rights describes the intervention of a third party, in this context the state, in the private interest problems between A and B.

For example, if A pollutes the water upstream and B is using water downstream, the state is able to redefine the distribution of property rights, allowing by this to overcome externalities.  


What is the difference between the positions as right holder and the position as privilege holder from the perspective of property rights theory (Hohfeld/ Bromley 1991, p44 ff)?


right holder: Right means that Alpha has an expectation or assurance that Beta will behave in a certain way toward Alpha. Duty means that Beta must behave in a specific way with respect to Alpha and so duty binds Beta... privilege holder:

 Maria (right holder) has an expectation that Jose (duty holder- behave in a specific way with respect to Maria) will not pick flowers from her garden. 


Privilege. Here, Alpha is free to behave in a certain way with respect to Beta. ... The dual of privilege is no right in which case Beta has no recourse if Alpha behaves in a certain way with respect to Beta...” (Folie 5)

Maria has the privilege to fertilize her flowers with Nitrate and Jose has no rights towards Maria if his water sources are contaminated by Nitrate.


What are static correlates and dynamic correlates according to Hohfeld (1971). Define the two concepts and use one example of each (i.e. by referring to Hohfeld’s typology) (slides; Bromley 1991 Part 2)

individuals are subject to several sets of overlapping legal relations (Bromley 1991 based on Hohfeld) 

Static: existing or established relationships 

  1. Right means that Alpha has an expectation or assurance that Beta will behave in a certain way toward Alpha. Duty means that Beta must behave in a specific way with respect to Alpha and so duty binds Beta...
  2. Privilege. Here, Alpha is free to behave in a certain way with respect to Beta. ... The dual of privilege is no right in which case Beta has no recourse if Alpha behaves in a certain way with respect to Beta...”

Dynamic: function in situations where new relationships may be created 

  1. power means that Alpha may voluntarily create a new legal relation affecting Beta... Alpha has the capacity to force Beta into a new situation that may be disadvantageous to Beta. The correlate of power, liability, means that Beta is subject to a new legal relation voluntarily created by Alpha”.

 A Community (Beta) depends on the water of a river that passes where a new company (Alpha) fertilizes the plantations of sugar-cane and this activity will cause pollution of this river by the dispending large amounts of fertilizers, that goes to the water by leaching. This community is down the river and depends on this water and is subject to this new legal relation with this company. 

  1. Immunity means that Alpha is not subject to Beta’s attempt voluntarily to create a new legal relation affecting Alpha. The correlate of immunity, no power, means that Beta may not voluntarily create a new legal relation affecting Alpha. ... (Folie 5)

 This new company has the immunity given by the state to produces sugar cane, because it will be use as biofuel source and the community that depends on this water source has no power to change this, even they want. 


What determines the choice between securing a property right through a liability rule (Haftungsrecht) and securing a property right through a property rule (Eigentumsrecht) (Bromley, 1991, 46)?

Worin unterscheiden sich Eigentumsrechte von Haftungsrechten (liability rule)? Geben Sie zwei Hauptunterschiede an und nutzen Sie Beispiele).

Beta has right of non-interference

(e.g. not to suffer from pollution) 

Property rule: – Alpha may not interfere with Beta without Beta’s consent Beta is protected by a property rule – (Alpha to buy off ex ante)

  • Right of protection against unwanted interference (others‘ duty to buy off this right ex ante)

Liability rule: – Alpha may interfere with Beta but must compensate Beta – (Alpha to compensate ex post) •

  • Right to compensation ex post (others‘ duty to compensate) where unwanted interference (Folie 7)

What rule to chose? 

  • Interference acceptable to occur, yes or not? Tendencies if interference will occur depends upon type of rule
  • Transaction costs imposed on different actors, optimal allocation changes (see Coasian bargaining below)
  • TC under property rule higher than under liability rule
  • Property rule difficult to realize when many actors implicated (cost of prior agreement are high) (Folie 8)


What does environmental policy making have to do with property rights (Bromley, 1991)?

“Environmental policy is, in essence, concerned with altering actual or presumed property rights among independent agents”

– “The issue of relevance is precisely one of who will get those rights, and thus who will have the effective protection of the state to do as they wish” (?) (Folie 10)


1. What does the Coase theorem suggest?

2. What are the underlying assumptions?

3. Please, explain what these assumptions imply.

4. Are these assumptions realistic (Slides)?

1. The Coase Theorem says that, if transaction cost are zero, the distribution of private property rights is irrelevant for economic efficiency since negotiations between the parties will always result in the same Pareto-efficient level of the externality Normative conclusion:

What matters is that private property rights are fully assigned, not how they are assigned to achieve pareto efficient outcome!


2. Assumptions of the Coase Theorem:

– No transaction costs

– Well defined property rights

– No „Income Effects“



4. assumptions are not realistic because in reality 

  • the transactions costs exist and there is no optimal prevention (representing the equilibrium between the marginal Utility of prevention and the marginal cost of), where does not matter who has the property rights.
  • it matters who has the property rights (and those who will have the protection of the state to do as they wish).


What happens to the socially optimal levels of prevention of harmful activities if we loosen the assumptions of the Coase theorem and consider the existence of transaction costs (Slides, Coase)?

Please, illustrate your reasoning graphically (slides).

If transaction costs are considered, the social optimal of prevention will be more than one.

In this case, property rights allocation does matter since the proper rights will decide which social optimal to choose.


– If we loosen assumptions (TC empirically matter) differences in property rights allocation lead to different outcomes in terms of resource management and to different social optima! Assuming existence of TC -> property rights (PR) allocation DOES matter!


What do Ostrom and Schlager view as different rights and positions associated to them? Explain each right and position with an example (slides; Schlager and Ostrom 1992)



1. Access

  • the right to enter a defined physical area and enjoy non subtractive benefits.
  • Example: a hike or sitting in the sun

 2. Withdrawal

  • the right to obtain the resource units or “products” of a resource.
  • Example: catch fish, appropriate water etc.). In addition to the right to access users may be authorised to harvest resource units at a particular location, during a specific time or using particular technologies.

3. Management

  • the right to change the physical structures in a resource system such as building an irrigation system or a road, changing the shoreline of a fishery, developing a variety of physical infrastructure for any particular resource;

4. Exclusion 

  • the right to determine who will have an access right and how that right may be transferred. Devise operational-level rights to access. They have the authority to define the qualifications that individuals must meet in order to access a resource.
  • Example: fishers who limit access to fishing grounds above a certain age, who live in a certain community and who utilise particular types of gear.

5. Alienation 

  • the right to sell or lease either or both of the above collective-choice rights. Permits the transfer of part or all of the collective-choice rights to another individual or group. Transferable ownership of productive resources leads to investments that maximises the current value of the resource. Non-transferability of ownership disconnect the investment from the time horizon of the investor.


I. Authorised Entrants:

  • Individual who hold operational-level access rights. Example: access to a park to enjoy recreational activities.

II. Authorised Users:

  • Individual who has both entry and withdrawal rights Example: involves the right to enter the park and right to harvest timber or other forest products. Defined by others who have collective choice rights of management and exclusion.

III. Claimants:

  • Individuals who possess the same rights as authorised users plus the collective-choice right of management. Have collective choice authority to devise operational rights of withdrawal, regulate internal use patterns and transform resource by making improvements. Little incentives for investment/ innovation.

IV. Proprietors:

  • Individuals who possess collective-choice rights to participate in management and exclusion. They authorise who may access resources and how resources may be utilised. They do not have the right to alienate either of these collective-choice rights.

V. Owners:

  • Individuals hold collective-choice rights of management and exclusion and alienation. They can sell or lease their collective-choice rights. Private ownership creates incentives for investments, innovations, and work efforts since it protects against expropriation by others. (security: will be able to harvest/benefit in the future) S
  • iehe Grafik!


What component rights does full ownership entail (slides)?

Full Ownership  

  • Right to use (usus)
  • Right to appropriate the returns (ususfructus)
  • Right to change form, substance or location (abusus)
  • Right to transfer part or all of the rights
  • Right to exclude
  • Right is limited by the rights of others (tort law)

Rules produce rights.

Rights have different sources:

  • De facto property rights: source among resource users
  • De jure: backed by state/ subject to judicial system,

exist only to extent. Must be recognized and credibly enforced otherwise anarchy


Please, categorize the following types of goods.

What establishes incentives for actors to invest into governance to exclude other actors from use / benefit of goods and services (Slides)?

Please, elaborate on your categorization describing assumptions you may make for classifying the corresponding goods and services.

  1. National defense
  2. IEPE lectures on Wednesday afternoon
  3. pollination services by bees
  4. IEPE 1 moodle site
  5. agricultural extension services
  6. amount of water in a river

1. National Defence

  • is a public good and often state property. It has low rivalry and a low excludability). The more rivalry the greater the benefit of exclusion.
  • Example: In the case of a war, I feel more protected if I have my own army and do not have to compete with others for protection (high rivalry). Therefore there could be an incentive to establish my own army before (club good).

2. IEPE Lectures:

  • Club good because of low rivalry but a high excludability. If the room is full, I can exclude people that didn’t enroll properly into the class.

3. Pollination Services by Bees:

  • Public good (Low rivalry/low excludability), in normal world with enough bees - CPR (if there a little bees, because of too much fertilizers used) -
  • Open access - Incentive: My incentive is to be the only farmer close to the bee stock.

4. IEPE Moodle Site:

  • Club good (Low rivalry/high excludability)
  • Common property - Incentive: If rivalry gets too high (too many users), the internet system will be very slow. I wouldn’t want many people to use it.

5. Agricultural Extension Services:

  • It depends on the style of the service - High exclusion: Only Agricultural farmers - Low rivalry: Free from the government? - Club Good

6. Amount of water in a river:

  • Public good (Low rivalry/low excludability), because the river is a running water, there is not less water available for others if I take some part from it.
  • Open access/state property


Are types of goods static? If not, why not? Please provide examples.

Types of goods are not static: e.g. clean water in large river can be a common pool resource or a public good (Kim)




Name the four types of resource management regimes and illustrate them with examples. (slides; Cole & Ostrom 2011; Bromley 2006)

1. Private property:

  • Is the legally and socially sanctioned ability to exclude others. Summary: Individual members have a recognised right to benefit from the asset, subject to legislative mediation and judicial review.

2. Open Access (res nullius):

  • There is no property right: “Everybody's access is nobody property"
  • Summary: No individual has a duty to refrain from accessing and using a resource. No individual or group has the right to prevent any other individual or group from accessing and using the resource. e.g. high seas fishery outside 200mile limits, the atmosphere.

3. Common Pool Resources (res communes): 

  • Common property represents private property for the group of co-owners since all others are excluded from the use and decision making.
  • Summary: Non-owners have a legal duty to respect boundaries of the regime e.g. irrigation districts, pastures. Each member has the right to exclude non-members of the ownership group, but no right to exclude other member of the ownership group. Lower exclusion and specification costs but reduced incentives for investments, innovations and efforts, costs of designing and managing use rights and costs for monitoring and enforcement. Many CPR are de facto open access resources: anyone who wishes can gain access and appropriate resource units.

3. State Property:

  • Ownership and control over use rest in the hands of the state.
  • Summary: The political community is the recognised owner of the asset. Individuals in the political community may benefit from the asset but must observe rules of the government agency responsible to the political community e.g. national forests and parks, military bases etc.


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Cite four aspects that can affect to the effectiveness of private property regimes in allocating goods and services. Specify how they shall affect effectiveness (slides; Cole 1999)


  • Individuals have right to undertake socially acceptable uses, and have duty to refrain from socially unacceptable uses.                   Others have duty to refrain from preventing socially acceptable uses, and have right to expect that only socially acceptable uses will occur.
  • depends on authority system/ coercive power of the state
  • strong incentives for investments, innovation and efforts


  • Costs of specification and exclusion (set-up; distributional conflicts)
  • Costs of monitoring and enforcement
  • Costs of transferring private rights


Cite four aspects that can affect to the effectiveness of government property regimes in allocating goods and services.

Specify how they shall affect effectiveness (slides)

  • Individuals have duty to observe use/access rules determined by controlling/ managing agency.                                                     Agencies have right to determine use/access rules.
  • Ownership and control over use in hands of the state
  • Often separation of ownership (citizens) and management (administration)
  • Low specification and exclusion costs


  • Low incentives for investments, innovation and work efforts 
  • High Cost for designing and managing use rights
  • High Cost of monitoring and enforcement*


Name aspects affecting the adequacy of common pool resource regimes (Ostrom, 2003) Welche Aspekte beeinflussen die Eignung von Common Pool Resource Regimen?

Attributes of participants that enhance CP Regime 

  • Accurate information about resource and expected flow of benefits and costs are cheaply available to participants.
  • Common understanding about the potential benefits and risks associated with the status quo.
  • Shared generalized norms of reciprocity and trust (initial social capital).
  • Stable group of resource users.
  • Participants plan to live and work in the area for a long time (low discount rate).
  • „Moderate“ collective choice rules between extremes of unanimity or control by a few to avoid high transaction costs or deprivation costs.
  • Participants are able to monitor and sanction at low cost.


How do externalities in the tragedy of the commons (Tragödie der Allmende) lead to suboptimal allocation and overuse of the resource?

 Please, illustrate your reasoning using a graph (slides) (Furubotn & Richter, 1998, chapter 3 p 100).

“The tragedy of the commons” refers to overuse of open access property regimes that occur after a failure of maintenance or governance of the resource.Hence there are no property rights, there are also no duties and it is of no one’s interest to manage the resource sustainably. Even in the case of a closed-access common pool resource, the common property solution, without further restrictions, leads to an inefficient result.

Hardin’s allegory of the “tragedy of the commons” provides a framework for analysing relations between property rights and environmental protection.

Thesis: resource depletion and pollution problems both stem from the incentives created by open access resources; when no-one can exclude anybody from access or use.

Avoid the tragedy: restricting access and privatisation, which would internalise costs of access and use decisions to the owners. The owners have the incentive to conserve the resources and are governed by the state.