Barzel on Property Rights

25 May 2007 at 12:58 pm 5 comments

| Nicolai Foss |

This is how Yoram Barzel — arguably the most creative current exponent of property rights economics — defines (economic) property rights (in this paper, p. 394):

… an individual’s net valuation, in expected terms, of the ability to directly consume the services of the asset, or to consume it indirectly through exchange. A key word is ability: The definition is concerned not with what people are legally entitled to do but with what they believe they can do.

Notice how different this is from other (older) economic conceptions (e.g., Furubotn & Pejovich, Alchian, Demsetz et al.) which have typically categorized property rights into usus, usus fructus and abusus rights (and the right to sell these rights), often keeping a legalistic connotation.

In contrast, Barzel’s definition of property rights disconnects property rights from any legal connotation (the law is of course relevant for enforcement, but not for the definition of the concept itself). Moreover, to Barzel a property right is essentially an expected stream of net utility.

The expectational component is clearly a useful innovation (see how Barzel puts it to use in the paper cited above). However, it comes as a cost of perhaps muddling things. Thus, the reason why property rights are valuable is exactly that they imply “the ability to directly consume the services of the asset, or to consume it indirectly through exchange” — that is, use rights and income rights. However, why not call these “abilities” property rights (as in the older property rights tradition in economics), and why call the overall subjective valuation of these rights “property rights”?

Entry filed under: - Foss -, New Institutional Economics. Tags: .

The Religion of Economists Pioneers of Industrial Organization

5 Comments Add your own

  • 1. Kevin Carson  |  25 May 2007 at 10:10 pm

    In the case of movable property, property rights are a fairly straightforward outgrowth of self-ownership.

    It’s much more problematic in the case of land. All the major theories of property rights in land, including mainstream Lockeanism and the Ingalls-Tucker doctrine of occupancy and use, are attempts to maximize the individual’s ownership of his labor product as embodied in buildings and improvements, given the difficulties presented by the fact that the land itself is fixed. Any such set of property rights in land, therefore, will be somewhat arbitrary; and it will involve tradeoffs in which one’s labor product must be abandoned on some cases, or recouping it is at least made more complicated, in return for greater ease of recouping it under other circumstances. That’s why I believe that self-ownership can arguably be treated as axiomatic, and property in moveable objects likewise, but property rules for land must be evaluated on utilitarian grounds insofar as they conduce to maximizing self-ownership.

  • 2. Joe Mahoney  |  25 May 2007 at 11:28 pm

    A great work of scholarship in property rights theory is Gary Libecap’s CONTRACTING FOR PROPERTY RIGHTS. Professor Libecap’s advisor was Professor Oliver Williamson.

  • 3. Gary Shiu  |  26 May 2007 at 10:43 pm

    Actually the first economist who seperates the economic implications of property rights from its legal meaning is professor Steven Cheung in his 1974 paper The Theory of Price Theory. There is some hint of his thesis in The Theory of Share Tenancy, a thesis Steve wrote under A. Alchian, in the late 1960s.

    But the ideas of property rights included in that thesis is not as well developed as his 1974 paper.

    An excellent example of how ownership in the legal sense could be decoupled from economic rights could be found in Hong Kong. Before HK’s handover to China, 99.99 % of the land is crowd land. But that fact did not have any effect on HK’s property development. The government simply leased the economic rights over land use through long term contractual arrangement, say 70 years. That showed right there how economic rights could be decoupled from ownership in the legal sense.

    As regards the question in the last paragraph, isn’t that the case that what one perceives as able to do could be different from what one actually can do with his economic rights?

  • 4. jonfernquest  |  28 May 2007 at 12:46 am

    Modern day zoning can radically change one’s bundle of property rights. Also this phrase:

    “an individual’s net valuation, in expected terms, of the ability to directly consume the services of the asset, or to consume it indirectly through exchange”

    Immediately invokes images of speculative real estate price bubbles, so the rights bundle is time-dependent.

  • 5. Jim Rose  |  28 September 2014 at 5:08 am

    Reblogged this on Utopia – you are standing in it!.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

Trackback this post  |  Subscribe to the comments via RSS Feed


Authors

Nicolai J. Foss | home | posts
Peter G. Klein | home | posts
Richard Langlois | home | posts
Lasse B. Lien | home | posts

Guests

Former Guests | posts

Networking

Recent Posts

Categories

Feeds

Our Recent Books

Nicolai J. Foss and Peter G. Klein, Organizing Entrepreneurial Judgment: A New Approach to the Firm (Cambridge University Press, 2012).
Peter G. Klein and Micheal E. Sykuta, eds., The Elgar Companion to Transaction Cost Economics (Edward Elgar, 2010).
Peter G. Klein, The Capitalist and the Entrepreneur: Essays on Organizations and Markets (Mises Institute, 2010).
Richard N. Langlois, The Dynamics of Industrial Capitalism: Schumpeter, Chandler, and the New Economy (Routledge, 2007).
Nicolai J. Foss, Strategy, Economic Organization, and the Knowledge Economy: The Coordination of Firms and Resources (Oxford University Press, 2005).
Raghu Garud, Arun Kumaraswamy, and Richard N. Langlois, eds., Managing in the Modular Age: Architectures, Networks and Organizations (Blackwell, 2003).
Nicolai J. Foss and Peter G. Klein, eds., Entrepreneurship and the Firm: Austrian Perspectives on Economic Organization (Elgar, 2002).
Nicolai J. Foss and Volker Mahnke, eds., Competence, Governance, and Entrepreneurship: Advances in Economic Strategy Research (Oxford, 2000).
Nicolai J. Foss and Paul L. Robertson, eds., Resources, Technology, and Strategy: Explorations in the Resource-based Perspective (Routledge, 2000).

Follow

Get every new post delivered to your Inbox.

Join 256 other followers