2 - Property rights, agency, and economic organization

Summary

Property rights and their dimensions

Most goods can be useful, or otherwise give satisfaction to individuals, in several ways. A walking stick can be used for support when walking or to beat an unpleasant neighbor. Potatoes can be eaten baked or used for making alcohol in a basement distillery. A gun can be used for hunting or holding up banks. A site can be used for the construction of a home or a small factory. We refer to the rights of individuals to use resources as property rights. A system of property rights is “a method of assigning to particular individuals the ‘authority’ to select, for specific goods, any use from an unprohibited class of uses.” The concept of property rights, as used in NIE, is a broad concept. In terms of law, it is wider than the legal concept of property rights, and it also includes social norms, as Alchian (1977) has emphasized:

The rights of individuals to the use of resources (i.e., property rights) in any society are to be construed as supported by the force of etiquette, social custom, ostracism, and formal legally enacted laws supported by the states' power of violence of punishment. Many of the constraints on the use of what we call private property involve the force of etiquette and social ostracism. The level of noise, the kind of clothes we wear, our intrusion on other people's privacy are restricted not merely by laws backed by police force, but by social acceptance, reciprocity, and voluntary social ostracism for violators of accepted codes of conduct.