Monday, March 23, 2009

Well defined private property rights matter ………

Professor Maitreesh Ghatak who teach economics in LSE says in today's FE that:

  • “…where property titles are ill-defined, where legal disputes takes decades to settle, where poor farmers or small businessmen face eviction threats, it is difficult to imagine how they can behave like textbook economic agents, namely, taking a long-run view, saving, investing, and climbing their ways out of poverty. Security of property rights therefore is of utmost importance. 
  • The term property right refers to an owner’s right to use a good or asset for consumption and/or income generation (referred to as “use rights”). This can also include the right to transfer it to another party, in the form of a sale, gift or bequest (referred to as “transfer rights”). A property right also typically conveys the right to contract with other parties by renting, pledging, or mortgaging a good or asset, or by allowing other parties to use it, for example, in an employment relationship. 
  • By property rights, economists typically refer to private property rights, a key feature of which is being able to legally exclude others from using a good or asset. This affects resource allocation by shaping the incentives of individuals to carry out productive activities involving the use of the good or asset, undertake investments that maintain or enhance its value, and also, to trade or lease it for other uses.”

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