Essential UCLA School of Economics: Why Property Rights Are Key to Efficiency and Reduce Conflict

Welcome to the essential ideas  of the UCLA School of Economics.

One area where UCLA economists made enormous  contributions was how property rights help

solve economic problems, reducing conflict  and promoting the efficient use of resources.

Harold Demsetz, a key member of the school, was  one of the first to write about the “tragedy

of the commons,” which explains that when  property is owned by everyone communally, it

will be overused and used ineffectively. Demsetz  observed that when property is privately owned,

and people directly benefit from its ownership,  property owners have much stronger incentives

to use it wisely and effectively. Let's explore the importance of property

rights using an example. Imagine a small  lake with a water skiing school on one side

and a fishing lodge on the other. Neither has property rights to the lake.

The water skiiers interfere with the  people fishing, hurting their business.

And similarly, the people fishing interfere with  the water skiiers and hurt their business. The two

businesses have tried to negotiate but, without  property rights, a permanent solution is unlikely.

But now let's imagine that each was  given property rights over half the lake.

Suddenly, many potential solutions are possible.

The fishing lodge might offer to buy  the water ski business—or vice versa.

Whichever business valued the lake  more, would likely buy the other out,

leading to the most effective use of the lake. Alternatively, the two businesses might agree

to a buffer between their two sides to better  accommodate both activities, or the fishing lodge

might pay the water skiing school to operate  only during off-season periods, which would

reduce conflict between the two. The presence  of property rights allows for such negotiations.

Much of the work of the UCLA School of Economics  focused on the importance of having well-defined

private property rights to reduce conflict  and promote the efficient use of resources.

For more information on the UCLA economics visit EssentialUCLAeconomics.org, and to learn about

more essential scholars, visit EssentialScholars.org