economics Lecture 5

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					                              Lecture 5 Property

1. Definition of property. Property rights.

2.Types of property.

3. Privatization. Differing views on privatization

                              1. Definition of property. Property rights.

Property is any physical or intangible entity that is owned by a person or jointly by a group of
persons. Depending on the nature of the property, an owner of property has the right to consume,
sell, rent, mortgage, transfer, exchange or destroy his or her property, and/or to exclude others
from doing these things. A title, or a right of ownership, is associated with property that
establishes the relation between the goods/services and other persons, assuring the owner the
right to dispense with the property in a manner he or she sees fit.

What can be property? Money. Shares. Capital. Personal property (physical possessions
belonging to an person),. real property (land).. Labor.. Firearms, , animals.

Intellectual property (exclusive rights over artistic creations, inventions, patents, copyrights,

Property may be divided into tangible property (such as cars, clothing, etc.) and intangible
property (such as financial instruments, including stocks and bonds, etc.)

Scholars in the social sciences stress that property is not a relationship between people and
things, but a relationship between people with regard to things.

A property right is the exclusive authority to determine how a resource is used, whether that
resource is owned by government or by individuals[1]. All economic goods have a property rights
attribute. This attribute has three broad components

   1. The right to use the good
   2. The right to earn income from the good
   3. The right to transfer the good to others

The concept of property rights as used by economists and legal scholars are related but distinct.
The distinction is largely seen in the economists' focus on the ability of an individual or
collective to control the use of the good. For example, a thief who has stolen a good would not
be considered to have legal (de jure) property right to the good, but would be considered to have
economic (de facto) property right to the good.

Traditional principles of property rights includes:

   1. control of the use of the property
   2. the right to any benefit from the property (examples: mining rights and rent)
   3. a right to transfer or sell the property
   4. a right to exclude others from the property.

Traditional property rights do not include:

   1. uses that unreasonably interfere with the property rights of another private party (the right
      of quiet enjoyment).
   2. uses that unreasonably interfere with public property rights, including uses that interfere
      with public health, safety, peace or convenience.

General Modern property rights conceive of ownership and possession as belonging to legal
persons, even if the legal person is not a natural person. Corporations, for example, have legal
rights similar to citizens of the certain country, including many of their constitutional rights.
Therefore, the corporation is a juristic person or artificial legal entity, which some refer to as
"corporate personhood".

Property rights are protected in the current laws of states usually found in the form of a
constitution or a bill of rights. The United States Constitution provides explicitly for the
protection of private property in the Fifth Amendment and Fourteenth Amendment:

The Fifth Amendment states:

       Nor be deprived of life, liberty, or property, without due process of law; nor shall private
       property be taken for public use, without just compensation.

The Fourteenth Amendment states:

       No State shall make or enforce any law which shall abridge the privileges or immunities
       of citizens of the United States; nor shall any State deprive any person of life, liberty, or
       property, without due process of law.

   Protection is also found in the United Nations's Universal Declaration of Human Rights,
   Article 17, and in the French Declaration of the Rights of Man and of the Citizen, Article
   XVII, and in the European Convention on Human Rights (ECHR), Protocol 1

'Real property' rights are rights relating to the land. These rights include ownership and usage.
Owners can grant rights to persons and entities in the form of leases, licenses and easements.

sporting rights], mineral rights, development rights, air rights

2.Types of property

Who can be an owner?

Persons can own property directly. In most societies legal entities, such as corporations, trusts
and nations (or governments) own property.

In the Inca empire, the dead emperors, who were considered gods, still controlled property after
Important widely-recognized types of property include private property (property owned by legal
persons or business entities), public property (state owned or publicly owned and available

Public property is any property that is controlled by a state or by a whole community. Private
property is any property that is not public property. Private property may be under the control of
a single person or by a group of persons jointly.

State property (also known as public property)is property that is owned by all, but its access and
use is controlled by the state. An example is a national park [8].

Common property is property that is owned by a group of individuals. Access, use, and
exclusion are controlled by the joint owners. True commons can break down, but, unlike open-
access property, common property owners have greater ability to manage conflicts through
shared benefits and enforcement [9].

Private property is both excludable and rival. Private property access, use, exclusion, and
management are controlled by the private owner.

Things today which do not have owners include: ideas (except for intellectual property),
seawater (which is, however, protected by anti-pollution laws), parts of the seafloor (see the
United Nations Convention on the Law of the Sea for restrictions), gasses in Earth's atmosphere,
animals in the wild (though there may be restrictions on hunting etc. -- and in some legal
systems, such as that of New York, they are actually treated as government property), celestial
bodies and outer space, and land in Antarctica.

The nature of children under the age of majority is another contested issue here. In ancient
societies children were generally considered the property of their parents. Children in most
modern societies theoretically own their own bodies—but they are considered incompetent to
exercise their rights, and their parents or guardians are given most of the actual rights of control
over them.

3. Privatization. Differing views on privatization.

Privatization is the incidence or process of transferring ownership of a business, enterprise,
agency or public service from the public sector (the state or government) to the private sector
(businesses that operate for a private profit) or to private non-profit organizations. In a broader
sense, privatization refers to transfer of any government function to the private sector - including
governmental functions like revenue collection and law enforcement.[1]

A long history of privatization dates from Ancient Greece, when governments contracted out
almost everything to the private sector[5]. In the Roman Republic private individuals and
companies performed the majority of services including tax collection (tax farming), army
supplies (military contractors), religious sacrifices and construction. However, the Roman
Empire also created state-owned enterprises — for example, much of the grain was eventually
produced on estates owned by the Emperor. Some scholars suggest that the cost of bureaucracy
was one of the reasons for the fall of the Roman Empire.
In more recent times, Winston Churchill's government privatized the British steel industry in the
1950s, and West Germany's government embarked on large-scale privatization, including selling
its majority stake in Volkswagen to small investors in a public share offering in 1961[5]. In the
1970s General Pinochet implemented a significant privatization program in Chile. However, it
was in the 1980s under the leaderships of Margaret Thatcher in the UK and Ronald Reagan in
the USA, that privatization gained worldwide momentum. In the UK this culminated in the 1993
privatisation of British Rail under Thatcher's successor, John Major; British Rail having been
formed by prior nationalization of private rail companies.

Significant privatization of state owned enterprises in Eastern and Central Europe and the former
Soviet Union was undertaken in the 1990s

There are three main methods of privatisation:

   1. Share issue privatisation (SIP) - selling shares on the stock market - the most common
      type of privatisation
   2. Asset sale privatisation - selling an entire organization (or part of it) to a strategic
      investor, usually by auction
   3. Voucher privatisation - distributing shares of ownership to all citizens, usually for free or
      at a very low price.

Share issues can broaden and deepen domestic capital markets, boosting liquidity and
(potentially) economic growth, but if the capital markets are insufficiently developed it may be
difficult to find enough buyers, and transaction costs (e.g. underpricing required) may be higher.
For this reason, many governments elect for listings in the more developed and liquid markets,
for example Euronext, and the London, New York and Hong Kong stock exchanges.

As a result of higher political and currency risk deterring foreign investors, asset sales occur
more commonly in developing countries.

Voucher privatisation has mainly occurred in the transition economies of Central and Eastern
Europe, such as Russia, Poland, the Czech Republic, and Slovakia.

A substantial benefit of share or asset-sale privatisations is that bidders compete to offer the
highest price, creating income for the state in addition to tax revenues. Voucher privatisations, on
the other hand, could be a genuine transfer of assets to the general population, creating a real
sense of participation and inclusion. If the transfer of vouchers is permitted, a market in vouchers
could be created, with companies offering to pay money for them.

Differing views on privatization


Proponents of privatisation believe that private market factors can more efficiently deliver many
goods or service than governments due to free market competition. In general, it is argued that
over time this will lead to lower prices, improved quality, more choices, less corruption, less red
tape, and quicker delivery. Many proponents do not argue that everything should be privatised.

The basic economic argument given for privatisation states that governments have few
incentives to ensure that the enterprises they own are well run. One problem is the lack of
comparison in state monopolies. It is difficult to know if an enterprise is efficient or not without
competitors to compare against. Another is that the central government administration, and the
voters who elect them, have difficulty evaluating the efficiency of numerous and very different
enterprises. A private owner, often specializing and gaining great knowledge about a certain
industrial sector, can evaluate and then reward or punish the management in much fewer
enterprises much more efficiently. Also, governments can raise money by taxation or simply
printing money should revenues be insufficient, unlike a private owner.

If private and state-owned enterprises compete against each other, then the state owned may
borrow money more cheaply from the debt markets than private enterprises, since the state
owned enterprises are ultimately backed by the taxation and printing press power of the state,
gaining an unfair advantage.

Privatising a non-profitable state-owned company may force the company to raise prices in order
to become profitable. However, this would remove the need for the state to provide tax money in
order to cover the losses.

Proponents of privatisation[ make the following arguments:

      Performance. State-run industries tend to be bureaucratic. A political government may
       only be motivated to improve a function when its poor performance becomes politically
       sensitive, and such an improvement can be reversed easily by another regime.[citation needed]
      Increased efficiency. Private companies and firms have a greater incentive to produce
       more goods and services for the sake of reaching a customer base and hence increasing
       profits. A public organization would not be as productive due to the lack of financing
       allocated by the entire government's budget that must consider other areas of the
       economy. (Note: However according to the Samuelson Condition, public organizations
       tend to produce more of a public good or service. Also, since private firms provide goods
       and services according to the marginal private benefit curve, private firms have an
       incentive to produce less.)
      Specialisation. A private business has the ability to focus all relevant human and financial
       resources onto specific functions. A state-owned firm does not have the necessary
       resources to specialise its g
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