ABSTRACT
This chapter explores the economic function of property rights. It begins by showing how ownership rights can spur private actors to coordinate the efficient use of resources, both statically and over time. The Coase Theorem finds its definitive expression in this setting, revealing the likely superiority of private arrangements over governmental decree in many, though not all, circumstances. The chapter also articulates an economic theory for defining the scope of property rights, which approach tackles the problem of incompatible uses. Property rights produce static-efficiency benefits by causing owners to internalise the costs and benefits of using their owned resources. The 'Tragedy of the Commons' illustrates problems that result from a lack of ownership. In particular, self-interested parties will act in their individual self-interest, but against their collective welfare, by excessively consuming a resource. Governments can design property rights in the first instance to minimise the transaction costs needed to achieve efficient resource allocations.
