Question

After reading the Economic Insight: "PROPERTY RIGHTS AND INCENTIVES" (Chapter 2), Comment on the following questions: How collective ownership and share consumption of the output create a ""Free Rider" problem? Are clearly defined property rights the foundation of Capitalism? Would you prefer to live a Socialist society?

Answer 1

In its idealized nature, the holder is entitled by a property right to a clear degree of control over an object, called ownership. Ownership gives 4 important rights

• The right to control the asset and decide on its use.
• :A claim to the value the asset generates.
• The right to exclude others from using the asset.
• The right to transfer to another holder.

It is important to note that property rights, with respect to the land, do not govern the relationship between the owner and his land but the relationship between the owner and other persons. Whereas contracts which govern the relationship between specific parties, property rights are rights against the world.

Property owners may be persons, groups of people, entities, or the state, and held properties can be physical, such as personal property or real property (land) or intangible, such as company assets or intellectual property. In fact, land rights may or may not be officially registered and can be issued for a finite amount of time or forever.

Locke believes that the property rights are fundamental rights that are excluded from any form of government. The moral foundation for Locke's theory is the idea that every man has a quintessential right to his own body and labour. Since physical objects are produced by combining private labour with unclaimed natural capital, man acquires private ownership over what he creates.

The importance of the Lockean paradigm is that the relationship between government and property-owning people is radically redefined. Government can not establish property rights for Locke, or grant certain rights to people, but only exists primarily to protect the inherent, pre-existing right to property to man.

The authors of the utilitarian school follow a distinctly different point of view. Through Legislation Theory, Jeremy Bentham (1748−1832) advocates a position for government that goes beyond pure exercising power so it can, or by exercising power, safeguarding the human rights of people. Instead, government has to function to improve its people' well-being.

The socialist thinkers Karl Marx and Friedrich Engels followed the utilitarian tradition but started to see individual ownership as a significant barrier to the maximisation of healthcare. It is noteworthy that Marx and Engels usually agree with the Lockean view that each individual holds a right to the worth of his labor.

Private ownership of land and accumulated resources, however, deprives workers of part of this interest, particularly if the land and capital are owned by relatively few – a perception that the human fight for well-being should ultimately be interpreted as a dispute between the bourgeoisie of the working class and the property-owning groups.

Communities that value private property have prospered, and communities that have struggled to eradicate private property. Private property establishment is so closely associated with nations' prosperity, since private property is also a required prerequisite for prosperity. In fact,  capitalism is also a necessary condition for prosperity.

It is well known that rivalrous but non-exclusive resources – so-called shared pool resources, or commons for short – pose the dual challenge of overuse (a demand-side failure) and underinvestment (a supply-side failure). Social scientists have examined different types of approaches to this issue, which could be considered resource "governance modes".

They vary from state control, to municipal government and collective ownership, to complete privatization, organized by the degree to which power is centralized. Each of these forms comes at a expense, of course. Governance costs may include asymmetric communication costs, service costs, compliance costs and transaction costs and the optimal model of governance is defined to a large degree by its relative cost advantage over other forms.

Exchange usually takes place in markets in capitalist economies, and the price signals produced by such markets are successful in organizing the decisions taken by individuals and companies about output, demand, and investment. Recognition and protection of property rights are crucial for individuals to agree to swap one item for another.

Many disputes emerge from competing uses of a finite resource which is held by several parties. Others emerge from adverse externalities imposed upon others by actions of one person. Such dispute resolution can require substantial costs on the parties concerned and on others.

Such costs vary from the cost of defending one's land from being stolen, to the cost of shielding oneself from externalities, to the cost of lawsuits, to actual abuse.

But the reality is that markets are not anarchic but merely reflect the human situation. We are not guaranteed the company of wise and virtuous fellows.

It's real we aren't fine. It's useless to try to trick them into being fine. Herbert Spencer was absolutely on when he noted that "the end result of protecting people from the consequences of foolishness is to flood the world with fools."One indication of our imperfection is that we continue to return to the futile attempt to perfect one another.

Capitalism is the human condition's cultural manifestation: we are free to do good or bad, and we need to keep that in mind in society. Through the concept of the right to private property, the free market allows one to hold it in mind — indeed, that institutionalizes it by property law.