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Jewish World Review March 1, 2005 / 20 Adar I, 5765 Economics for the citizen By Walter Williams
Part Eight of a Ten-Part Series
Property rights refer to who has exclusive authority to
determine how a resource is used. Property rights are said to be
communal when government owns and determines the use of a resource.
Property rights are private when it's an individual who owns and has the
exclusive right to determine the non-prohibited uses of a resource and
receive the benefit there from. Additionally, private-property rights
confer upon the owner the right to keep, acquire and sell the property
to others on mutually agreeable terms.
Property rights might be well defined or ill defined. They
might be cheaply enforceable or costly to enforce. These and other
factors play a significant role in the outcomes we observe. Let's look
at a few of them.
A homeowner has a greater stake in the house's future value
than a renter. Even though he won't be around 50 or 100 years from now,
the house's future housing services figure into its current selling
price. Thus, homeowners tend to have a greater concern for the care and
maintenance of a house than a renter. One of the ways homeowners get
renters to share some of the interests of owners is to require security
deposits.
Here's a property-rights test question. Which economic
entity is more likely to pay greater attention to wishes of its
clientele and seek the most efficient methods of production? Is it an
entity whose decision makers are allowed to keep for themselves the
monetary gain from pleasing clientele and seeking efficient production
methods, or is it entities whose decision makers have no claim on those
monetary rewards? If you said it is the former, a for-profit entity, go
to the head of the class.
While there are systemic differences between for-profit and
non-profit entities, decision makers in both try to maximize returns. A
decision maker for a non-profit will more likely seek in-kind gains such
as plush carpets, leisurely work hours, long vacations and clientele
favoritism. Why? Unlike his for-profit counterpart, he doesn't have
property rights to take his gains. Also, since he can't capture for
himself the gains and doesn't suffer the losses himself, there's reduced
pressure to please clientele and seek least-cost production methods.
You say, "Professor Williams, for-profit entities sometimes
have plush carpets, have juicy expense accounts and behave in ways not
unlike non-profits." You're right, and again, it's a property-rights
issue. Taxes change the property-rights structure of earnings. If
there's a tax on profits, then taking profits in a money form becomes
more costly. It becomes relatively less costly to take some of the gains
in non-money forms.
It's not just businessmen who behave this way. Say you're on
a business trip. Under which scenario would you more likely stay at a
$50-a-night hotel and eat at Burger King? The first is where your
employer gives you $1,000 and tells you to keep what's left over. The
second is where he tells you to turn in an itemized list of your
expenses and he'll reimburse you. In the first case, you capture for
yourself the gains from finding the cheapest way of conducting the trip,
and in the second, you don't.
These examples are merely the tip of the effect that
property-rights structure has on resource allocation. It's one of the
most important topics in the relatively new discipline of law and economics.
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Economics for the citizen, Part Seven
© 2005, Creators Syndicate | ||||||||||
