Property
Rights &
State
Module 12
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Topics to be Covered
01 02
Property Rights Determination of
Property Rights
Meaning & Role
03 04
Demand for & Supply of Role of the State
Property Rights
An Illustrative Case Study
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01
Property Rights
Meaning and Role
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Property Rights
● They are formal and informal righs to:
1. Use,
2. Transfer and,
3. Exchange resources
● Property rights determine:
1. The resource use. (Incentive Function)
2. The allocation of reources to the most productive use.
(Efficiency Function)
3. The legal protection against expropriation, theft or unfair seizure.
(Security Function)
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Property Rights
Common Fully Specified
Open Access Arrangements/ Private Rights/
Property Common Property Private Property
Rights Rights
• Anyone can use the asset • A group of people shares • A full set of property rights
without any restrictions & access to a resource. where an individual has
regardless of how their use • The use is regulated and comprehensive control over
affects the use of others. managed to prevent an asset.
• There are no formal property depletion.
rights, and this often leads to • Rules determine who can use
overuse or depletion of the the resource and how much
resource. ( The Tragedy of they can use.
the Commons)
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Greater use Role of Property Rights
as
Collateral to
Secure
Loans Sale as property right
improves resource
Higher allocation in two ways:
the
Exclusive
Rights
Market enables
Signals scarcity asset to go to
Greater value those who
Incentive to
Maintain or value the most
Improve
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02
Determinants of
Property Rights
Factors that influence changes in property rights
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The Determinants
Changes in
Scarcity 1 4 Engogenous Vs.
Exogenous Changes
Adaptive Efficiency 2 5 Costs of Change and
Political Resistance
Role of Cooperation,
Demand & Supply
Framework 3 6 Conflict, or State
Intermediation
7
Institutions and
Political Systems
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Changes in Scarcity
Changes in technology, Creates incentives to
Makes resources
population and societal make and adapt new
more or less scarce
preferences property rights
Examples
Technological Increase need for
Resource scarcity
advancement well defined property
rights
Increase need for
Population growth Reduces resource
formalized & well
availability
defined property rights
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Adaptive Efficiency
Adaptive efficiency, a term used by economist Douglass North, refers to how well a society
can adapt its institutions, including property rights, in response to changes in resource scarcity
or other external factors.
Better adaptive efficiency
(quickly and effectively adjust More economic
property rights to new realities) growth
Worst adaptive Experience
efficiency (fail to adapt) stagnation or decline
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Demand & Supply Framework
Demanders: Those who would benefit from a new property rights system.
Hence, they seek changes in property rights.
Suppliers: They are the political actors who have the power to
implement/make or block changes.
The interaction between demanders and suppliers helps determine whether
property rights evolve or remain stagnant.
The framework considers how different groups push for or resist changes
based on their own interests and incentives.
E.g.: POSCO project in Odisha (2005-2017)
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Endogenous Vs. Exnogenous Changes
Endogenous Factors: Changes that come from within the system where
groups or individuals push for changes. E.g.: political lobbying or social
movements, market forces.
E.g.: Agricultural land reforms in India
Exogenous Factors: Changes that come from outside the system and are
the external shocks. E.g.: wars, disasters, or economic crises.
These endogenous and exogenous factors also brings changes in the
existing property rights system.
E.g.: Tsunami of 2004 in Andaman and Nicobar Islands
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Costs of Change and Political Resistance
High costs of making side
payments to political Make institutional
actors changes costly, even Poor
Institutional
if the economic gains economic
stagnation
Overcoming political would be significant performance
resistance/ veto powers
(to unilaterally stop an
official action)
E.g.: Land Acquisition, Rehabilitation, and Resettlement Act (LARR) of 2013
aimed to replace the Land Acquisition Act of 1894 by introducing more stringent
regulations for acquiring land for public purposes and private projects.
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Role of Cooperation, Conflict, or State
Intermediation
Changes to property rights can come about through:
1. Cooperation, where all parties agree to a new system;
2. Conflict, where one group forces a change on another; or
3. State intermediation, where the government enforces a new
regime.
Any of the above will lead to evolution of property rights system.
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Institutions & Political System
Flexible Institutions Facilitate the evolution
of property rights
Rigid or Corrupt Block beneficial
Institutions reforms
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03
Demand & Supply
of Property Rights
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Demand for
Property Rights
The demand for secure property
rights increases with:
1. Increase in resource scarcity
2. Increase in rent from the resource
Demand for formal (secure) property
rights arises when the benefits of
security become more valuable than
the costs of insecurity. In other words,
when the economic losses from
usurpation, defense, lobbying, or
inefficient use become too high.
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Formal property rights (i.e.,
Determinants of Demand legally recognized
enforceable ownership) provide
and
for Property Rights security for owners. This security
prevents the loss of potential
economic benefits (or rent).
Rent Dissipation Lobbying for Formal Rights
A situation where potential benefits are To secure formal property rights, people
wasted or diminished due to various sometimes have to lobby the government or
factors like conflict, theft, or inefficiency. authorities, which also costs time and money.
Usurpation and Defense Costs Sub - Optimal Use of Resources
• Insecure/ unclear property rights leads to Insecure property rights leads to
usurpation/ seziure of property. inefficient use of resources.
• Unsecure property rights leads to spending More focus is on short term gains
more money & efforts to defend claims, rather than long term benefits
incresing the defense costs.
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Supply of
Property Rights
• The state plays a major role in
supplying property rights.
• It has comparative advanatage of
enforcing laws & using violence to
protect rights.
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Determinants of Supply of Property Rights
Political Gatekeepers & Individuals
with Veto Powers
01. Have the ability to block changes in property rights that
threaten their interests.
Costs of Change
02. Changing property rights can be costly, especially if the
new rights harm some groups.
Institutions
03. Countries with inclusive & Better ability to adjust property rights with
transparent institutions changing scarcity and economic conditions
Countries with exclusive Experience more conflict or inefficiencies in
& less transparent property rights reform
institutions
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Challenges in Supply of Property Rights
01 02
Collective Action
Political Insecurity
Problems
Groups that would benefit from Political actors may resist changes to
changes in property rights may not property rights because they benefit
have the organizational capacity to from the current system or have fear of
push for reforms. losing power.
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Impact on Economic Efficiency
Failure to Supply Property Rights leads to
Resource Suboptimal Environmental
Conflicts Investments Damage
Without formal property rights, Insecure property rights deter Where property rights are tied
individuals may fight over long-term investments, as to resource use, insecure rights
resources, leading to violence individuals are less likely to can lead to environmentally
and waste. invest in assets they might lose. harmful practices, such as
deforestation, as landowners
try to "prove" beneficial use to
avoid expropriation.
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04
Role of the State
State’s Role & its Influence
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Defining Interpreting
Property Rights Property Rights
Legislative Function Judicial Function
The state defines property rights • The judiciary interprets property
through laws. rights when disputes arise.
This involves: • This involves clarifying ambiguities
1. Determining ownership, in property laws or determining
2. The boundaries of ownership, and how rights apply in specific cases.
3. The rights that come with
ownership.
Enforcing
Property Rights
Police Function
• The state enforces property rights
through law enforcement
agencies (police, courts).
• This prevents unauthorized use,
theft, or encroachment on
property.
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03
Brazil Case Study
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