Growing new property rights
Who owns space? For now, no one. But if recent stories about a Russian entrepreneur trying to beam ads across the night sky from orbit are true, that will change.
Why? A basic result from property-rights economics is that as the value of common property resources increases, more carefully-delineated property rights over them will be formed and enforced.
In this case, a technological change allowing ads in space boosts the value of orbit. As entrepreneurs try to capture that value, defacto property rights will emerge.
So will some interesting legal disputes—which leads to a second result from property-rights economics: property rights disputes are inevitable in a market economy.
The reason is that property is ambiguous. It’s composed of a complex bundle of attributes. Some are observable and valuable, some aren’t. And when property rights get legally delineated—either by contract or court decision—not all attributes will be specified. Only attributes that are both observable and valuable at the time of delineation will be assigned ownership.
Disputes break out when the value of an unspecified attribute goes up—often caused by new technology. And when it does, it’s not clear who owns it. People will compete to capture that value.
An example will clarify: You rent a plot of land with an old wooden fence on it. At the time you sign the contract there’s no mention of the fence because it’s worthless. Now, months later, imagine some new use for that particular kind of wood is discovered. Suddenly, the fence is worth delineating. And unless you and your landlord can cut a private deal, you’ve got a legal dispute.
Economist Harold Demsetz first outlined this theory of property-rights formation in a famous 1967 article in the American Economic Review. It’s a fun read—he examines how beaver populations in Native American communities transformed from common property to private property when the value of beaver pelts rose as access to European markets opened up.
The definitive statement of this “property rights” approach to economics comes from economist Yoram Barzel, who’s Economic Analysis of Property Rights (1997) is a readable introduction with lots of quirky applications—from why salt’s free in restaurants to how rules against contracting prolonged slavery in the U.S.
More on property-rights here. An application to car break-ins here.
Posted by Andrew on Sunday March 28, 2004 | Feedback?
