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.

RELATED TERMS
  1. Property Management

    The administration of residential, commercial and/or industrial ...
  2. Investment Property

    A real estate property that has been purchased with the intention ...
  3. Form 4797

    A tax form distributed by the Internal Revenue Service (IRS) ...
  4. Personal Property

    A type of property which, in its most general definition, can ...
  5. Real Property

    Any property that is attached directly to land, as well as the ...
  6. Bundle Of Rights

    A set of legal rights afforded to the real estate title holder. ...
Related Articles
  1. Investing

    How Property Rights Affect Economies

    Property rights are laws governments create that enable investors to control, benefit from, and transfer property.
  2. Investing

    Your Property Tax Assessment: What Does It Mean?

    The amount of a property tax bill is based on the property’s value, the exemptions it qualifies for, its use and the local property tax rate.
  3. Investing

    What You Should Know About Real Estate Valuation

    Anyone involved in a real transaction can benefit from gaining a basic understanding of the different methods of real estate valuation.
  4. Personal Finance

    State Laws Dictate Division Of Joint Property

    In breakup, divorce or death, community or common law will determine how property is divided.
  5. Taxes

    How Does a Tax-Free Exchange Work?

    In regards to the sale of property, particularly in real estate, a 1031 exchange is increasingly being recognized for its tax benefits to investors of all levels.
  6. Managing Wealth

    Investing In Foreclosures Not A Get-Rich-Quick Venture

    Investing in this kind of real estate takes capital, time and careful planning.
  7. Financial Advisor

    How Does Depreciation Reduce My Tax Bill?

    How the depreciation tax rule can assist real estate investors.
  8. Investing

    How Rental Property Depreciation Works

    It's a bit tricky, but a valuable tool to make your investment pay off.
  9. Taxes

    This Is How Property Taxes Are Calculated

    Understanding how property taxes work will ensure that you won't be overcharged.
RELATED FAQS
  1. What criteria does a property need to meet to be considered an 'investment grade' ...

    Learn what it takes for institutional investors to consider a property "investment grade," such as real estate investment ... Read Answer >>
  2. What do states do with unclaimed property?

    Understand what unclaimed property is and what types of property can be considered abandoned or unclaimed. Learn what states ... Read Answer >>
Hot Definitions
  1. Pro Forma

    A Latin term meaning "for the sake of form". In the investing world, it describes a method of calculating financial results ...
  2. Trumpcare

    The American Health Care Act, also known as Trumpcare and Ryancare, is the Republican proposal to replace Obamacare.
  3. Free Carrier - FCA

    A trade term requiring the seller to deliver goods to a named airport, terminal, or other place where the carrier operates. ...
  4. Portable Alpha

    A strategy in which portfolio managers separate alpha from beta by investing in securities that differ from the market index ...
  5. Run Rate

    1. How the financial performance of a company would look if you were to extrapolate current results out over a certain period ...
  6. Hard Fork

    A hard fork (or sometimes hardfork) is a radical change to the protocol that makes previously invalid blocks/transactions ...
Trading Center