ABSTRACT
Secure property rights represent an important pre-requisite for the efficient operation of markets, and are therefore fundamental to all economic activity. In this sense, law is a complement to markets. This chapter discusses the nature and economic function of property rights. Much of property law, whether in the form of common law rules or government regulation, is aimed at limiting the detrimental effects of externalities. In this way the law (ideally) corrects for market failure by coercively allocating resources in a more efficient manner. In his famous paper on social cost, the economist Ronald Coase examined the Pigovian approach to externalities as just described by challenging two of its underlying assumptions. These are, first, that there is a single "cause" of the harm, and second, that some form of government intervention is needed to internalize that harm. The chapter considers these two challenges in turn.
