BUS 150 Module 1: Scarcity and Property Rights

scarcity

too few resources exist to cover all the different ways people would like to use them; forces choices or tradeoffs

property rights

(decision rights); provide answer to question of who makes a choice about use of a scarce resource which has alternative uses

subjective value of individuals

individual drives choice about the alternative uses of scarce resources; posits that economic value is in the eye of the beholder; no such thing as metaphysical value

opportunity cost

the value forgone when we choose to use a resource in one activity versus another

voluntary exchange

among individuals of value for value is a choice that creates wealth

Tragedy of the Commons

communal property causes issues even though it might create less conflict because no one individual is responsible for taking care of the property; antidote to property rights is to decentralize property rights

wealth

measured by the flow of value through time; Present Value formula (value₁/(1+r)¹)+(value₂/(1+r)²)+…+(value_n/(1+r)ⁿ)

economics is the study of

choices; the study of scarce resources that have alternative uses

Frederich Hayek

The “Economic Problem” of Society; 1974 Nobel Prize Winner; “…how to secure the best use of resources known to any of the members of society, for ends whose relative importance only these individuals know”; “…problem of the utilization of knowledge which is not given to anyone in its totality”

free markets

decentralized with freely fluctuating prices best coordinate the broad and diverse subjective perceptions, and exchanges thereof; require well-defined rules of property rights; prices merely coordinate your subjective perceptions with society

four basic tenets guide the economic analysis of property rights

1. People’s choices are constrained due to limited (scarce) resources.

2. People act rationally to pursue their self-interests by adjusting to the benefits and costs of their actions.

3. People will compete for control of scarce resources, and the nature of competition will depend on the rules of the game.

4. Well-specified and transferable property rights encourage gains from trade.

property rights as “bundle of sticks”

exclusive right of possession, exclusive right of profit (use), exclusive right to transfer

Hobbes, The Leviathon

“…life in a world…without rules and property rights would be “nasty, brutish, and short”

Plato, The Republic

communal property (ownership and use) to avoid conflicts; this view is known as “The Tragedy of the Commons”

Aristotle, Politics

private property because “that which is common to the greatest number has the least care bestowed upon it”; St. Thomas Aquinas held and advanced this opinion

Milton Friedman

about opportunity cost - popularized the phrase that “there is no such thing as a free lunch” to help remind us that the use of scarce resources always has a cost even though the cost may be hidden or not obvious; “You can have freedom or you can have equal outcomes. You can’t have both.”

John Locke, The Second Treatise on Government

property rights existed before government existed; they are the primary justification for government; property rights are natural rights (like life and liberty); man should own the fruits of his own labor; “The great and chief end therefore of men uniting into commonwealths, and putting themselves under government, is the preservation of property”; if a ruler violates property rights, then ruler is “at war” with owner, and owner may disobey

Adam Smith, Wealth of Nations

built upon Locke; private property created a role for government in defending property; existence of government created the security to stimulate the creation of new property; relationship between property and government justifies government’s role in (a) providing national defense (protect property from external threats), and (b) administering justice (protect property from internal threats)

Power of the Poor Video

1. extra-legal vs illegal

2. common cultures of rules form (a) but not recognized outside of local culture and (b) consider Bern Switzerland out-take and Eugen Huber, who developed a “common law” of subcultures into the now-wealthy Switzerland

extra-legal

acts outside of the law, but is widely supported by nation’s people

illegal

acts expressly forbidden by law

Hernando De Soto, Power of the Poor

1. worked to ‘elevate’ the extra-legal culture into the legal culture through documentation of the property rights understood in the extra-legal environment

2. documentation of extra-legal rights brough extra-legal culture into legal culture

3. entrepreneurial risk taken within legal environment of documented legal property rights

Shining Path

Marxist rallying effort of the extra-legal culture in Peru

catch shares

property rights assignment to prevent “Tragedy of the Commons” in oceanic/sea fishing - over fishing leading to destruction of species

IFQ/ITQ

individual fishing quotas/individual transferrable quotas (same thing)

license

refers to a situation in which someone has limited property rights; usually restricted in time, use, or transferability; resemble ownership but fall short of full property rights; depend on meeting certain conditions

Engagement Ring Case

engagement ring is property of giver with a license to the receiver for the duration of the engagement; upon conclusion of the engagement (a) if marriage, then receiver fully has three exclusive property rights (b) if engagement is terminated, then giver has three exclusive property rights

takings

society - through properly formed government - may take property away from private owner if (a) owner is compensated at fair market value (FMV), and (b) the taking is for public use (eminent domain)