Question

Give TWO reasons (or ways) for how allowing private ownership of property, when taken from the commons, can promote the efficient use of resources. You just need to note the economic benefit; you do not need to explain what it means or define it. A few words for each reason should suffice – if they are the correct ones, of course.

Answer 1

By allowing private ownership of property, when taken from the commons, it leads to social benefits turning into private benefits and thus in order to maximize the private benefits, resources are allocated efficiently, for example an irrigation system is turned into a private property, the private benefits gained are always far more than the social benefits. This leads to per unit more consumption and efficient utilization of the water body.

It leads to lower cost per unit of production as resources are used optimally, led by private ownership of property, common property becomes a private property and the owner tries to optimize the resources available to him/her. Thus earlier public lands were a common good, as anyone could exploit the resources and gain as much traction as possible.

However, with certain areas turning into selective private ownership zones, the resources such as trees and flora and fauna are used much more efficiently and this leads to efficient utilization of resources, as they know that too much usage could lead to minimal gains being available over the next coming years.

Thus two reasons are that the private benefits exceed social benefits. There is limited exploitation of resources and lower cost of production.