The Lighthouse-Keeper in Economics: Property Rights Entrepreneurship and the Externality Problem

Abstract

The lack of effective property rights regimes is a root cause of numerous undesirable outcomes from market-based systems. We argue for more attention to the nature of property rights for a host of assets and propose a dynamic theory of property rights which recognizes their evolutionary nature and the role of entrepreneurs in their creation and development. We suggest that the actions of profit-motivate entrepreneurs initiate and encourage the development of property rights for markets for externalities. We argue that property rights entrepreneurship is more important and pervasive than recognized in the literature and point to numerous examples throughout economic history, from evolving intellectual property protections for biotechnology firms to the protection of Alaskan king crab fisheries. We present a process model which summarizes the dynamics of property rights entrepreneurship. We also introduce novel constructs to the field, including property rights voids, enabling conditions, the activation level of excludability, accelerating resource degradation, the presumption of rights, and distinctions between asset-rights and product-rights entrepreneurship. We also distinguish between rights creation (the generation of regimes of excludability) and rights capture (the acquisition of those rights). Finally, we discuss implications for the efficient functioning of markets, the preservation of resources, and social welfare.