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