Question

What is a property right? How do property rights help to address market failures? How would they work to help resolve the issue of pollution of rivers and streams?

Answer 1

Property rights are theoritical socially -enforced constructs in economics for determining how a resource or economic good is used and owned. Resources can be owned by individuals,associations ,collectives or governments. Property rights can be viewed as an attribute of an economic good.

• An externality occurs whenever an economic growth activity imposes a net cost or benefit on a third party. It is positive externality if the activity imposes a net benefit and a negativity externality if it imposes a net cost.
• Suppose your neighbours ride bicycles through your front yard or the smokestack dirties your shirt .These are clear -cut cases when the externalities negatively affect your property rights .The ensuring economic problem is how to assign those costs to the producer of the external effect and away from you and your property.

Market failure is when the market does not allocate resources on its own efficiently in a way that balances social costs and benefits ,externalities are one of the example.

• Price based instruments alter the prices of goods and services to reflect their relative impact.They provide certainty to industry as to the compliance costs of achieving an outcome but the environmental outcome generated to the broader community is uncertain.
• Right based instruments can be designed to control the quantity of the environmental good or service to the socially desired level.These instruments provide certainty as to the environmental outcome but not as to the cost to industry of achieving that outcome.
• Instruments designed to reduce market friction are less common. They aim to stimulate a market to produce a desired environmental outcome through improving the workings of existing markets by reducing transaction costs or improving information flows. Responses to market friction tend to be less certain and longer term.