4/27/20151 Property Rights Principle 4: Incentives Matter. Principle 5: Markets work with...

04/18/23 1

Property Rights

Principle 4: Incentives Matter.Principle 5: Markets work with

competition, incentives, information and property rights.

04/18/23 Unit 13: Property Rights 2

After one hunting season No Property Rights


After one hunting season With Property Rights


What’s the Difference?


• The rights to use, control, and obtain the benefits from a good or service

• Property rights – exclusively held by an owner (clearly

defined)– easily enforced– transferable at low cost at the owner’s

discretion


Property rights conserve and develop resources

• Your desk

• Your walls at home vs. your walls at school.

• Your dog and your lawn at home vs. your dog and the lawn at the city park.


The Tragedy of the Commons

• A scarce resource owned in common is overused since no individual pays the full cost of using the resource.


The Tragedy of the Commons

• The Llama Children


Maximizing Family Income

Number of llamas

grazing on the

commons(1)

Price paid per

llama(2)

Average Income

per Llama

($/year)(3)

Total Family Income from

grazing(4)

Marginal Family income

from grazing($/year)

(5)

Income from

bond(6)

Total Famil

y Income

(7)

Bernardo 1 130 30 30 30 45 75

Luis 2 125 25 50 20 36 86

Luisa 3 120 20 60 10 27 87

Llama Ha 4 115 15 60 0 18 78

Ha 5 110 10 50 -10 9 59

Ha 6 105 5 30 -20 0 30

04/18/23 10

Property owned in common will be overused.

Establishing rights helps use the resource most efficiently.


Examples

• Commonly owned European forests.

• Coca in South America

• Irish potato famine – landlords unsure of length of ownership pillage the land.

• Condominium dweller pays flat rate for utilities. Will he overuse the utilities?

• It’s nice to share, but it’s not efficient!

04/18/23 12

Preserving Endangered Species

Why don’t we see deer, elk, antelope, and bear roaming the

streets of Yorba Linda?


Two reasons some animals are disappearing.

• If the dead animal is valuable, and there are no property rights, if I don’t kill it, someone else will.

• To some, animals are nuisances and compete with humans for scarce land. – Bears, wolves, prairie dogs, alligators,

crocodiles, mountain lions, bison, racoons


It is easier to establish property rights if:

• the animal does not travel widely,• the animal is contained in one nation, • the animal does not “flow” as fish in

streams,• enforcement costs are not high, and• people are willing to come together to

preserve the species and to police themselves.


Saving Elephants in Zimbabwe with Property

Rights


What’s the Difference?


Some facts

• African wildlife is a food source, a nuisance to crops and a danger to humans. They look at them as “oversized, dangerous rodents.”

• From the villagers’ perspective, they are far more valuable dead than alive. (A villager can earn up to 100 times the average income by poaching ivory.)

• There is no incentive to preserve them and actual incentives to destroy them.

• “Just say no”?????


Poachers and Villagers

• There are huge profits to be made from poaching.

• The villagers are glad to see the pests go. • In Kenya where elephant hunting is banned,

the population has gone from 40,000 to 4,000 in 20 years.

• In Zimbabwe, where hunting is permitted the elephant population is increasing.

• Why?


Saving Wildlife through Property Rights

• CAMPFIRE program established property rights (incentives for villagers) and disincentives for hunters. – Permits to hunt elephants are sold at $10,000.– Villagers “own” elephants and get 75% of the

revenue from the permits.– The meat belongs to the villagers.– The villagers are compensated for crop damage. – Average village income has increased by 25%.



• Results– In Zimbabwe, land dedicated to game

conservation has grown from 12% to 17%– In Kenya, elephant population has declined

from 40,000 to 4,000 in 20 years of banned hunting.



• What has happened to the benefits to villagers of preserving the elephants?

• What has happened to the costs of the villagers from preserving the elephants.


How did the silkworm save the beaver from extinction?

• Europeans had overhunted them.

• French came to new world for beaver.

• Beaver increasingly scarce in America due to overhunting – with exception of Cheyenne territory where

property rights were rigorously enforced

• Beaver saved by silkworm


The near extinction of the bison

• Indians live on less and less land, increasing competition for bison on that land

• Bison hunted for robes and cows and calves were most desirable

• Number of bison killed– 1874 – 20,000– 1875 – 100,000

• Today, bison are raised for meat and tourism


Native Americans Preserved Wildlife without Property Rights??

What happened to the Wooly Mammoth or the Sable Toothed Tiger?


Will wildlife become extinct?

• .02% of all animal species exist today.

• There is an inevitable competition between humans and animals for land.

• Profits in illegal poaching are high.

• Banning ivory or other trade is not effective.



• .02% of all animal species exist today.

• There is an inevitable competition between humans and animals for land.

• Profits in illegal poaching are high.

• Banning ivory or other trade is not effective.



• Establishing property rights to valuable animals provides an incentive to preserve the animals.


How to destroy endangered species

• Enforce the ESA (endangered species act)– If an endangered species is found on my

land, I lose the right to deal with my land as I like.

– I must take certain precautions to preserve the animal at my expense.

– I have an incentive to s…., s…….., and s……..


Cleaning the air efficiently, Policy 1

Firm Tons of

Pollution

Emitted

CleanupCost per

ton

Tons of Pollution

Cleaned UnderPolicy 1

Cleanup cost under Policy 1

–Pollutants

reduced by 30%

A 30 $5 9 9 * $5 = $45

B 20 $4 6 6 * $4 = $24

C 20 $3 6 6 * $3 = $18

D 20 $2 6 6 * $2 = $12

E 10 $1 3 3 * $1 = $3

Total 100 30 $102


Cleaning the air efficiently, Policy 2

Firm Tons of

Pollution

Emitted

Cleanup

Cost per

ton

Tons of Pollution

Cleaned Under

Policy 2

Cleanup cost under Policy

2 – Pollutants limited to 15 tons or

less

A 30 $5 15 15 * $5 = $75

B 20 $4 5 5 * $4 = $20

C 20 $3 5 5 * $3 = $15

D 20 $2 5 5 * $2 = $10

E 10 $1 0 $0

Total 100 30 $120


Cleaning the air efficiently, policy 3

Firm Tons of PollutionEmitted

CleanupCost per

ton

Tons of Pollution

Cleaned Under

Policy 3

Cleanup cost under

Policy 3 – Market for

Pollution Rights

A 30 $5 0 No cleanup

B 20 $4 0 No cleanup

C 20 $3 0 No cleanup

D 20 $2 20 20 * $2 = $40

E 10 $1 10 10 * $1 = $10

Total 100 30 $50


Compare the PoliciesFirm Tons

ofPolluti

on Emitted

Cleanup

Cost per

ton

Cleanup cost

under Policy 1

–Pollutantsreduced by

30%

Cleanup cost

under Policy 2

– Pollutantslimited to

15tons or less

Cleanup cost

under Policy 3

– Market forPollution Rights

A 30 $5 9 * $5 = $45

15 * $5 = $75

No cleanup

B 20 $4 6 * $4 = $24

5 * $4 = $20

No cleanup

C 20 $3 6 * $3 = $18

5 * $3 = $15

No cleanup

D 20 $2 6 * $2 = $12

5 * $2 = $10

20 * $2 = $40

E 10 $1 3 * $1 = $3 $0 10 * $1 = $10

Total 100 $102 $120 $50


Main Points

• Effective property rights have three characteristics: they are– 1) clearly defined, 2) effectively enforced, and 3) easily

transferable.• The Tragedy of the Commons occurs as a scarce

resource owned in common is overused since no individual pays the full cost of using the resource.

• Elephants, bison, beaver, water, air, rain forests, are all examples of the Tragedy of the Commons.

• The Endangered Species Act can create negative secondary effects because it deprives people of their property rights.


Main Points

• Establishing property rights for wildlife is easier if

1. the animal does not travel widely,

2. the animal is contained in one nation,

3. the animal does not “flow” as fish in streams,

4. enforcement costs are not high,

5. people are willing to form an agreement to preserve the species


Main Points

Establishing property rights by creating a market for pollution permits maximizes the efficiency of cleanup.

4/27/20151 Property Rights Principle 4: Incentives Matter. Principle 5: Markets work with...

Documents

Transcript of 4/27/20151 Property Rights Principle 4: Incentives Matter. Principle 5: Markets work with...