Miceli, Thomas J. --- "Property" [1999] ELECD 16; in Backhaus, G. Jürgen (ed), "The Elgar Companion to Law and Economics" (Edward Elgar Publishing, 1999)

Book Title: The Elgar Companion to Law and Economics

Editor(s): Backhaus, G. Jürgen

Publisher: Edward Elgar Publishing

ISBN (hard cover): 9781858985169

Section: Chapter 9

Section Title: Property

Author(s): Miceli, Thomas J.

Number of pages: 15

Extract:

9 Property
Thomas J. Miceli


Introduction
The concept of property is fundamental to both law and economics. The law
defines and protects the bundle of rights that constitute property, thereby
creating the legal framework within which resource allocation and wealth
distribution take place. The economic approach to property law emphasizes
its role in promoting an efficient allocation of resources. Accomplishing this
goal generally involves creation and protection of individual rights in prop-
erty so as to encourage exchange and investment, though, in some cases,
transaction costs, scale effects, or other factors may favour third party or
collective control of property rights. The purpose of this entry is to show how
legal rules define and protect the efficient property rights regime.
The discussion begins with the fundamental problem of assigning property
rights. It then turns to an examination of legal rules governing transfers
(voluntary exchange) and violations (involuntary exchange) of property rights.
The theme is that these rules are designed to minimize the impact of transac-
tion costs and uncertainties about ownership. The final topic concerns the
optimal scale of ownership: when is efficiency served by individual owner-
ship and when by common or collective ownership? The principal trade-off is
between the incentives of private ownership and the scale economies of
common ownership.

Origin and assignment of property rights
In a seminal article on the emergence and function of property rights, Demsetz
(1967) pointed out the fundamental link between property rights and exter-
nalities. Externalities are defined to be costs ...