• Property rights are considered one of the most fundamental requirements of a capitalist system, and are partly why there is need for government.
• Property rights are the legal controls of the ownership of a good.
• Property rights can be issued through legislature and regulations.
• A property right is the exclusive authority to determine how a resource is used and who it is owned by.
• The lack of property rights makes it hard to identify who is responsible for a negative externality, and who should therefore pay taxes to amend them and to solve the market failure of over-production. Conversely it is also hard to identify who is responsible for positive externalities and therefore provide them subsidies to increase output and thus eliminate the problem of under consumption.
• If the owner of an asset is not legally defined then there is no economic incentive to prevent its misuse, this can lead to Tragedy of the Commons.
• For example a Tragedy of the Commons, is that the owner of the fish in the sea is usually undefined, and so this can lead to over-fishing which could make fish extinct. If the owner could be identified the government could tax firms to fish, meaning they will do it in a more sustainable fashion.
To solve this issue of over-fishing the government could create a property right defining ownership of the fish in a certain area of the sea perhaps to a local homeowner.
• Property rights also allow for the transaction of goods between parties and the renting or mortgaging of an asset.
• By creating property rights the government can easily identify who is responsible for external costs, once these have been allocated it is cheap for the government, as no-more government intervention is necessary in theory.
• Some property rights cannot be allocated for example carbon emissions.