property rights and market failure

• When it comes to common access resources, the biggest issue is that nobody owns them
• Perverse incentives in common access resources lead to overexploitation.
• Issuing property rights aims to internalize the negative externalities of resource use
• Why does a private producer with property rights have an incentive not to overextract resources?

  They suffer future losses
• Negative externalities from resource overextraction are internalized by the private producer with property rights.
• If another producer trespasses on private land, the property owner can sue
• What is the goal of property rights in terms of resource use?

  Reach socially optimum level
• The incentive for private producers to maintain their land comes from their own income
• What is one of the main challenges in allocating property rights?

  Enforcement costs
• Property rights can be easily applied to resources like air and seas.

  False
• Enforcement of property rights is costly, especially if the government cannot afford to police
• Why might granting property rights to local villagers over a chemical plant using a river be problematic?

  Could harm local economy
• Order the steps involved in resolving a dispute over property rights in a shared resource

  1️⃣ Chemical plant wants to dump waste into river

  2️⃣ Local villagers want to bathe in river

  3️⃣ Villagers gain property rights

  4️⃣ Chemical plant must pay villagers to use river
• Granting property rights to a chemical plant might disadvantage local villagers dependent on the river.
• A third party, such as a government agency, may be better suited to maintain equity in property rights allocation