After you have worked through this section of learning unit, you should be able to:
- describe the different property rights systems
A distinguishing feature between economic systems is their differing approach to property rights. Property can refer to tangible assets such as land, buildings, vehicles, animals, jewellery, et cetera, or intangible assets such as patents and intellectual property.
Full ownership of property can be broken down into the following three basic rights:
- The right to dispose of (sell) the property.
- The right to use the property as the owner desires.
- The right to receive the income generated by the property.
Partial ownership exists when only one or two of the property rights is/are held. For example, a family that rents a house from a landlord has the right to use the home (i.e. to live in it) for the duration of the lease. The landlord maintains the right to dispose of the property and the right to receive the income generated from the property.
Property can be owned privately or publicly.
Differences in the legal enforcement of property rights will also affect real economic outcomes. Consider the example of two societies: these societies have identical resources and property rights and are fully owned by individuals in both societies (i.e. private ownership). The only difference is that society A has well-functioning legal and law enforcement institutions which protect property rights, while society B does not. In society A, individuals will seek to increase their incomes by investing capital to make the highest possible income off their property, thus resulting in an increase in economic activity and increased prosperity. In society B, however, the threat exists that owners can be separated from their property at any time. This will remove the incentive to improve or invest in property since it can be taken without reasonable compensation leading to a decline in economic activity.
Theoretically, command economies favour complete public ownership of property, while the market system favours absolute private ownership of property. In practice, however, most economies can be described as mixed with varying emphasis on command and market systems. The USA is an example of one of the more market-based mixed economies, even though it still has public ownership of property. China is an example of a command-based mixed economy, but limited private property ownership is allowed – for example, individuals can own real estate such as houses but they cannot own the land on which the house is situated.
Do the following activity:
Complete the following by selecting the correct option in brackets:
|Pure traditional||Pure command||Mixed|
|Coordinating mechanism||Determined by tradition||(Centrally planned / Free market)||Combination of all three|
|Property rights||Typically limited||(Publically owned / Privately owned)||Combination of public and private ownership|
|Price determination||Typically no currency||(By the state / Forces of demand and supply)||Prices are mainly determined by the free market but there is government intervention|
|Incentives||Community survival||(Working for the common good and/or external coercion / Self-interest and profit maximisation)||Self-interest and working for the common good|
You can use the following table as a summary of the important characteristics and differences between the different economic systems.
|Pure traditional||Pure command||Mixed|
|Coordinating mechanism||Determined by tradition||Centrally planned||Combination of all three|
|Property rights||Typically limited||Publicly owned||Combination of public and private ownership|
|Price determination||Typically no currency||By the state||Prices are mainly determined by the free market but there is government intervention|
|Incentives||Community survival||Working for the common good and/or external coercion||Self-interest and working for the common good|