Monday, October 1, 2012

Property Rights

            Property rights are approved and enforced by the government and society according to Armen Alchian. The person responsible for assigning these rights must uphold the set of rules entitled.  Private property rights are important in that it helps create healthy competition, eliminate discrimination, and prevents government interference. The need for healthy competition is important, as Alchian states, “well-defined and well-protected property rights replace competition by violence with competition by peaceful means”. Without such means competition would become stagnate because there would be no need to significantly alter prices.         Consider running shoes and the many different styles and options available. If the government decided to interfere with the private property rights of the owners or corporations of these companies than the land that the people once owned would become a mean of commons or public lands. Several problems might occur: competition would decrease because there would be no incentive and the use of resources would not be effectively utilized. Incentives are motivators that help increase competition. If the equilibrium price for running shoes is $45 then the sellers would try to reach that price to meet the buyers, thus the competition would be constantly changing regarding monetary value. The use of resources would then be utilized effectively. If the government interrupts the concept of the invisible hand then shortages or surpluses can occur. Thus the use of resources would not be effectively used.
            With private property rights, such uses are controlled by the owner. The owner can decide who utilizes the resource, at what price, and whether they want to delegate, sell or rent pieces of the resource. This creates competition between sellers that helps eliminate discrimination, “more complete property rights make discrimination more costly” (Alchian). In government controlled rights discrimination easily seeps into the system. Alchian considers the example of a landlord renting an apartment to a black woman when no price control is put into effect. He makes the point that the landlord would be less likely to discriminate because he can set the price of renting his establishment at the price he wants to whoever is willing to agree to that price. The landlord would not care if a black woman was renting from him as long as he was receiving the rent dues he desired.
            But when price controls are established by the government than the landlord would become pickier because he would not be making the same amount of money that he was before, he lost his incentive.  If the price control for rent was set at $800 when the landlord was previously receiving $1200 in rent then the landlord would not be as happy and might not welcome a minority as he had before. All of a sudden the landlord would receive a line-up of people waiting for apartment rentals; he would then carefully select his renter to his liking. As Alchian states, “The landlord, now unable to receive the full money price, will discriminate in favor of tenants whose personal characteristics—such as age, sex, ethnicity, and religion—he favors. Now the black woman seeking an apartment cannot offset the possible disadvantage of her skin color by offering to pay a higher rent”.
            Private property rights are necessary and can be controlled through means of patents and copyrights. Corporations are a form of private property rights in that a large amount of people share or own the company, receiving a portion of the profits obtained. Unfortunately there are certain circumstances that make private property rights too difficult such as when a factory is emitting clouds of black smoky fog into the air near farming land. This can cause problems as to who should pay for the damage to the air that cannot be physically contained which then in return damaged the crops of the farmer’s land. The consequences of poorly defined property rights can result in legal matters which can cost vast amounts of money. When these situations occur sometimes the need for coercive measures is appropriate. This is why the government controls the rights of air and use of water.
            In some situations, the government is needed to minimally control the use of resources than to be privately owned, “when private property rights are unavailable or too costly to establish and enforce, substitute means of control are sought. Government authority, expressed by government agents, is one very common such means” (Alchian). The problem of the matter is that people no matter how good take advantage of something as simple as air or water and they disrupt the natural flow by pollution. This is why the government has interfered and now does not allow private property rights.
            Overall private property rights are in an economic point of view, excellent and necessary. Private property rights are human rights that prevent discrimination, create healthy competition, and prevent unnecessary government interference.

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