The economics of insecure property rights

The preceding analysis shows that overlapping usage, exclusion and disposal rights can distort economic incentives. However, even if these problems do not exist, there may be more serious sources of inefficiency. Poorly defined and/or weakly enforced private property rights encourage rent-seeking activities: the wasteful use of resources to try to influence the distribution of wealth, rather than the creation of wealth. This section examines the costs of insecure property rights. The main conclusion is that when property rights are insecure, there are potentially three separate costs: [1]

  • • The costs of “winner take all” conflict: In a winner take all conflict over property rights, the resources of the 'loser' of the contest are rendered valueless.
  • • The costs of autarky: Even if parties agree to split the insecure resource according to their winning probabilities, this may not be Pareto optimal, and conflict precludes trade that would exploit these possible gains.

  • [1] Rent-seeking costs: The costs of devoting resources to securingproperty rights, rather than using them to produce valuable goodsand services.
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