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Elliot B. Gertel:
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Rabbi Yonason Goldson: The End of the Age of Reason
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Rabbi A. Henach Leibowitz: The Power of Spiritual Inertia
Caroline B. Glick: The perils ahead
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Stratfor Intelligence Briefing: How Bush and Obama together could change the Middle East dynamic
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Michael Doyle: High Court to consider today donated monuments that may have religious messages in public parks
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Frank J. Gaffney, Jr.: Will Obama stop government officials considering institutionalizing financial jihad?
Jonathan Tobin: They Will Decide Their Own Fate
Nov, 10, 2008
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Barry Rubin: A letter to the president-elect from a Middle East realist
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Frank J. Gaffney, Jr.: Treasury Dept. submits to Shariah law
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Jonathan Tobin:
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Rabbi A. Henach Leibowitz: Our Immutable Noble Essence
Caroline B. Glick: Running against Bush
Oct. 30, 2008
Jonathan Rosenblum: The End of the Special Relationship?
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Oct. 29, 2008
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Oct. 27, 2008
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Jonathan Mark: The Mystery Of The Arab-American Vote
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Caroline B. Glick: Testing Obama's mettle
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Daniel Pipes: Obama Would Fail Security Clearance
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Jonathan Tobin:
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Jonathan Rosenblum: Sukkos and the Great Meltdown
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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
http://www.JewishWorldReview.com |
Economic theory is broadly applicable. However, a society's
property-rights structure influences how the theory will manifest
itself. It's the same with the theory of gravity. While it, too, is
broadly applicable, attaching a parachute to a falling object affects
how the law of gravity manifests itself. The parachute doesn't nullify
the law of gravity. Likewise, the property-rights structure doesn't
nullify the laws of demand and supply.
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.
Every weekday JewishWorldReview.com publishes what many in uplifting articles.
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Walter Williams Weekly Column Archives
Economics for the citizen, Part Seven
Economics for the citizen, Part Six
Economics for the citizen, Part Five
Economics for the citizen, Part Four
Economics for the citizen, Part Three
Economics for the citizen, Part Two
Economics for the citizen, Part One
© 2005, Creators Syndicate
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