Property Rights and Economic Efficiency--The Australian Airlines Revisited

Abstract

Ownership rights to private property may be purchased and sold by individuals. The taxpayer-owner of public property, however, does not possess this option to exchange his share of public property. He is compelled to be a public owner and is an equal owner with all other citizens of the state. An important implication of the ability to transfer ownership in the private sector is that costs and rewards of economic activities accrue more directly to the individual responsible for them. In particular, private property facilitates capitalization of future consequences into current transfer prices. Accordingly there is a higher correlation between the reward-cost structure and the economic effort of the individual.2 A second important implication is that transferable ownership generates comparative advantage effects. Interpersonal differences with respect to abilities and knowledge among individuals can bring increased specialization in the ownership of business that will increase aggregate wealth in the case of privately-owned enterprises. The inability of individuals to purchase and sell claims to public property prevents specialization in ownership and inhibits inexpensive detection and rectification of poor management practices. As a result of the transferability of ownership, we would expect, ceteris paribus, private businesses to be more efficient than government firms.