Theory of property rights

Outline:1. Definitions and concepts

2. Consequences of different types of rightsa. short-termb. Long-term

3. Property rights change

4. Addressing some complications

1.Definitions and concepts

Property rights defined (again): claims to use or control a resource that are recognized as legitimate by some entity(ies) larger than the individual and protected through some type of social or legal sanction.

Key components:Property rights entail rights with respect to benefit streams of value and duties of others to respect those rights.

Granting rights and enforcing duties requires competent legal or social authorities who can be called upon to enforce rights and duties. In some cases the authority may need to defend individual rights over the apparent interests of the collective.

The Legal Pluralism Approach

• property rights are supported by formal state legal systems, communities, customary authorities, projects and programmes that modify the distribution of power

• implies opportunities for “forum shopping” and “negotiation over resource use and resource rights.” A key role for research is to provide objective support to these negotiations.

One’s property rights to a particular benefit stream are rarely absolute.

From the perspective of the right holder, key attributes of property rights are assurance, duration and breadth.

Assurance: probability of enjoying the same right in a future period

Duration: length of time period of right

Bundles of rights – breadth of rights (1/2):

1. Transferability:No transfer allowed

sharecropping allowedrental allowed

inheritance allowedsale allowed, with restrictions

unlimited sale allowed

2. Exclusion:No exclusion – open access / no right

Access restricted to members of a defined groupor certain conditions

Full exclusion -- right / privilege

Bundles of rights (2/2):

3. Use and management rights:No right -- privilege

non-destructive collectionseasonal cultivation & grazing right to determine withdrawal levels

right to transform/enhance (eg planting trees)

right to destroy

Tenure defined the distribution, assurance, breadth and duration of rights and duties to resources / property.

Units holding rights may be individuals, corporations, communities or the state. A situation in which property rights are held by communities may also be common property.

Property Rights Regimes

• Private property: – Individual or “legal individual” holds rights

• Common Property: – Group (e.g. community) holds rights– Can manage, exclude others– Importance of rules to manage, distribute

• Public Property– State holds rights– Is it effective in managing, excluding?

• Open Access: no effective management

2. Consequences of property rights

a)Short-term consequences:

i) Production disincentive of incomplete rights

ii) Collateral effect: land title can be used to secure loans from a financial institution.

Strongly supported by De Soto, eg his book, The Mystery of Capital :Why Capitalism Triumphs in the West and Fails Everywhere Else.

Evidence from Peru that land titling for 1.2 million urban hhs led to an increase in work hours, more work outside the home, less child labour and more mortgaging (Panaritis)

iii) Risk managementCustomary and common property tenure systems may partially substitute for insurance markets. This includes sharecropping in which production risks are shared between land owners and tenants (while fixed rents require tenants to absorb all risk); plot scattering in which farmers are allocated parcels across different agro-ecologies; and common property rangelands in which risks are pooled across large areas.

b. Long-term consequences

i) Investment and disinvestment effects (long duration tenure security is essential for motivating investments with long-term payback periods and for reducing deliberate running down of the resource base)

ScaleTemporal

HYVs

IPM

Collective Action

TenureSecuritylow high

high

Type ofInstitution

low

region

S patia l

plot

Watershed

ForestryIrrigation

R a nge la nd s

Agro-forestry

Terracing

Soilfertility

Shortterm

Longterm

Fisheries

ii. Allocation effects

Transferable resource rights can facilitate re-allocation of resources in line with farmers’ productivity and endowments and other resources. Without transferable rights, resources may go under-utilized (eg idle land).There are concerns that transferable resource rights will lead to distress sales and the creation of a new class of landless poor.

iii) Conflicts over resource rights

Conflicts over resource rights are frequent in some parts of the world. Less codified rights tend to entail greater conflict.

Eg 1. Migrants given insecure rights and restricted ability to transfer rights

Eg 2. State authorities make investments in irrigated areas, without giving farmers rights to those areas

Eg 3. Creation of more secure rights for farmers reduces rights for pastoralists

3. Property rights change

a. Demand-driven model

Society will define and enforce more exclusive and secure rights when the benefits exceed the costs. Benefits of more exclusive and secure rights include the transfer of resources to more efficient uses and users, increased investment in the resources, using land as collateral, and reducing litigation over obscure property rights. Costs of more exclusive and secure rights are the transaction costs associated with the definition and enforcement of rights over smaller and more individualized units of land. The net benefits of exclusive and secure rights increase as populations grow and markets become more commercialized (Demsetz (1967) and Posner (1977).

b. Interest group model (Eggertsson 1990; Libecap?) • Property rights as the outcome of interactions

between interest groups in a political market

c. Inclusive political economy models (Douglass North and others)• exogenous factors, transaction costs, interest groups, distinction between rule makers and rule enforcers … the institutional models described by Ruth

4. Addressing some

complications of property rights

a) benefits of common property and fuzzy boundaries in areas with low and variable rainfall

Van den Brink, Chavas and Bromley (1990) illustrate the efficiency of mobile grazing when rainfall is highly variable across patches of rangeland: the more variable and less co-variance between patches, the greater the efficiency gains of mobility. Mobility can be facilitated by state property, common property, or private property with efficient trade of grazing rights between units.

Niamir-Fuller (2000) argues that mobility allows pastoralists to access a diverse range of rangelands, markets, exchange relations and social-cultural networks.

McCarthy & Goodhue (2001) demonstrate potential value of “fuzzy rights” – fuzzy boundaries may yield greater total welfare than crisp boundaries.

b. Watershed property rights:• claims to use or control the diverse resource stocks, flows and filters that comprise watersheds• individuals and groups that exert those claims• statuatory and non-statuatory entities that support those claims• institutions that protect those claims• interactions among different types of resources

c. Rights to partner resources

Access, management and utilization of many valuable resources depends upon property rights to “partner” resources, particularly land and water.

Eg. Access to land in pastoral areas may be mediated through private property or common property water points.

Eg Access to water may be mediated by access to land – recogition of separate water rights is most advanced in South Africa and irrigation areas.

Eg. Access to plant genetic resources may be mediated through access and utilization of land (see recent CAPRI workshop on CAPRI in plant genetic resources).