Property Rights
4/10/2020
Principle 4: Incentives Matter.
Principle 5: Markets work with competition, incentives, information and property rights.
1

After one hunting season
No Property Rights
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After one hunting season
With Property Rights
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What’s the Difference?
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• 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
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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.
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The Tragedy of the Commons
• A scarce resource owned in common is overused since no individual pays the full cost of using the resource .
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The Tragedy of the Commons
• The Llama Children
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Maximizing Family Income
Number of llamas grazing on the commons
(1)
Price paid per llama
(2)
Average
Income per
Llama
($/year)
(3)
Bernardo 1
Luis 2
Luisa 3
Llama Ha 4
Ha 5
Ha 6
130
125
120
115
110
105
20
15
30
25
10
5
60
60
30
50
50
30
Total Family
Income from grazing
(4)
Marginal
Family income from grazing
($/year)
(5)
30
20
10
0
-10
-20
Income from bond
(6)
27
18
45
36
9
0
Total Family
Income
(7)
87
78
75
86
59
30
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Property owned in common will be overused.
Establishing rights helps use the resource most efficiently.
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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!
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4/10/2020
Preserving Endangered
Species
Why don’t we see deer, elk, antelope, and bear roaming the streets of Yorba Linda?
12

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
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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.
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Saving Elephants in
Zimbabwe with Property
Rights
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What’s the Difference?
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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”?????
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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?
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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%.
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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.
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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.
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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
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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
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Native Americans Preserved
Wildlife without Property
Rights??
What happened to the
Wooly Mammoth or the
Sable Toothed Tiger?
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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.
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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.
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Will wildlife become extinct?
• Establishing property rights to valuable animals provides an incentive to preserve the animals.
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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……..
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Cleaning the air efficiently, Policy
Firm Tons of
Pollution
Emitted
Cleanup
Cost per ton
1
Tons of Pollution
Cleaned Under
Policy 1
Cleanup cost under Policy 1 –
Pollutants reduced by 30%
C
D
A
B
E
Total
30
20
20
20
10
100
$5
$4
$3
$2
$1
6
6
9
6
3
30
9 * $5 = $45
6 * $4 = $24
6 * $3 = $18
6 * $2 = $12
3 * $1 = $3
$102
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Cleaning the air efficiently, Policy
Firm
C
D
A
B
E
Total
Tons of
Pollution
Emitted
30
20
20
20
10
100
2
Cleanup
Cost per ton
$5
$4
$3
$2
$1
Tons of
Pollution
Cleaned Under
Policy 2
5
5
15
5
0
30
Cleanup cost under Policy 2 –
Pollutants limited to 15 tons or less
15 * $5 = $75
5 * $4 = $20
5 * $3 = $15
5 * $2 = $10
$0
$120
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Cleaning the air efficiently, policy
3
Firm
D
E
Total
A
B
C
Tons of
Pollution
Emitted
20
10
100
30
20
20
Cleanup
Cost per ton
$5
$4
$3
$2
$1
Tons of Pollution
Cleaned Under
Policy 3
20
10
30
0
0
0
Cleanup cost under
Policy 3 – Market for
Pollution Rights
No cleanup
No cleanup
No cleanup
20 * $2 = $40
10 * $1 = $10
$50
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Compare the Policies
Firm Tons of
Pollution
Emitted
Cleanup
Cost per ton
C
D
A
B
E
Total
30
20
20
20
10
100
$5
$4
$3
$2
$1
Cleanup cost under Policy 1
–
Pollutants reduced by
30%
9 * $5 = $45
6 * $4 = $24
6 * $3 = $18
6 * $2 = $12
3 * $1 = $3
$102
Cleanup cost under Policy 2
–
Pollutants limited to 15 tons or less
15 * $5 = $75
5 * $4 = $20
5 * $3 = $15
5 * $2 = $10
$0
$120
Cleanup cost under Policy 3
–
Market for
Pollution
Rights
No cleanup
No cleanup
No cleanup
20 * $2 = $40
10 * $1 = $10
$50
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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.
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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
4/10/2020 to preserve the species
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Main Points
Establishing property rights by creating a market for pollution permits maximizes the efficiency of cleanup.
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