Property Rights

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What are 'Property Rights'

Property rights refer to the theoretical and legal ownership of specific property by individuals and the ability to determine how such property is used. In many countries, including the United States, individuals generally exercise private property rights – the rights of private persons to accumulate, hold, delegate, rent or sell their property. In economics, property rights form the basis for all market exchange, and the allocation of property rights in a society affects the efficiency of resource use.

BREAKING DOWN 'Property Rights'

The term "property" is very expansive, although the legal protection for certain kinds of property varies between jurisdictions. In most developed countries, for example, the rights of property ownership can be extended by using patents and copyrights to protect scarce physical resources (such as houses, cars, books, shoes, land, tire irons or cellphones), non-human creatures (such as dogs, cats, horses or birds) and even some intellectual property (such as inventions, ideas or words).

Basics of Private Property Rights

Private property rights are one of the pillars of capitalist economies, as well as many legal systems and moral philosophies. Other types of property, such as communal or government property, are legally owned by groups but practically enforced by individuals in positions of political or cultural power.

Within a private property rights regime, individuals need the ability to exclude others from the uses and benefits of their property. All privately owned resources are rivalrous, meaning that only a single user may possess the title and legal claim to property. Private property owners also have the exclusive right to use and benefit from the services or product. Private property owners may exchange the resource on a voluntary basis.

Acquiring Rights to a Property

In a non-private property rights regime, the ownership and use of resources is allocated by force, normally by the government. Such governments determine who may interact with, can be excluded from or may benefit from the use of property. Resources in a non-private property rights regime are allocated by political ends, rather than economic ones.

Individuals in a private property rights regime acquire and transfer in mutually agreed-upon transfers, or else through homesteading. Types of mutual transfers include rents, sales, voluntary sharing, inheritances, gambling and charity. Homesteading is the unique case; an individual may acquire a previously unowned resource by mixing his labor with the resource over a period of time. Examples of homesteading acts include plowing a field, carving a stone and domesticating a wild animal.

Private Property Rights and Market Prices

Every market price in a voluntary, capitalist society originates through transfers of private property. Each transaction takes place between one property owner and another person interesting in acquiring the property. The value at which the property exchanges depends on how valuable it is to each party.

Suppose an investor purchases $1,000 in shares of stock in Apple Inc. In this case, Apple values owning the $1,000 more than the stock. The investor has the opposite preference, and values ownership of Apple stock more than $1,000.

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