Dynamic property rights and the market process

Abstract

Purpose Clearly defined and enforceable property rights are commonly recognized as prerequisites to economic calculation and the market process. The purpose of this paper is to argue that when entrepreneurs add or subtract certain rights from the bundle of rights that constitute a property right they face a classic planner’s dilemma: the need to separate the technologically possible from the economically feasible. Traditionally, prices provide the signals needed to resolve the planners dilemma, but because prices refer to the entire bundle of rights that constitutes property, the entrepreneur is unable to immediately identify the combination of rights that isolates the attribute of a good consumers desire to purchase. Creating new bundles of property rights results in new prices, which generate new information essential to further developing economically viable arrangements of property rights; hence, property rights are dynamic. Design/methodology/approach The paper develops the theory of dynamic property rights, and then offers two case studies that illustrate different elements in the theory. One case study applies the theory to productive entrepreneurship, specifically in the sharing economy. The second case study applies the theory to protective entrepreneurship via a historical study of land title use in England and France. The author concludes with policy implications. Findings Recognizing that property rights are dynamic has several important implications. Restricting the bundling or de-bundling of property rights is a form of intervention in the market process equivalent to price fixing. Similarly, efforts to support property rights protecting institutions need to account for the fact that property rights bundles are not necessarily static but control over them needs to be stable and predictable. Finally, a more robust and accurate conceptualization of the marking process and what it means to “economize” on scarce resources does not just include the efficient allocation of property rights, but also the efficient allocation of the underlying rights bundles themselves. Social implications A dynamic theory of property rights allows the author to understand how property rights evolve and offer an account of different property rights regimes by highlight the living connection between productive and protective entrepreneurship. Originality/value This paper aims to integrate ideas from market process theory with entrepreneurship and institutional evolution. The paper extends the ideas in the UCLA property rights school to illuminate two case studies – one highly relevant to current policy makers, and the other relevant to development economists.