Friday, December 28, 2007

Property Rights

There is a strand of economists who would generally call themselves institutional economists who place great store in the concept of property rights. This theory runs both a developmental perspective - that economic development can only occur once prpoerty rights are protected - and an environmental perspective - following the Coase theorem that all externalities can be efficiently resolved by the market if all property rights are fully allocated.

There are, however, many flaws with this approach. Firstly, the Coase theorem has as an assumption that transaction costs in trading the properyy rights are zero. Secondly, many argue from the efficacy of the allocation of a property right to the presumption of its allocation. So a polluting firm claims that the property right in air quality (or water quality) is already theirs so they are the ones who need compensation if they are to stop polluting.

Joshua Gans writing in his blog Game Theorist has written a neat short review of Bee Movie. He says the movie as an allegory about property rights and concludes:

The message for the kiddies is you might have property rights but that enforcing them may cause others harm, so think about that one. Now think about that people who might be downloading Bee Movie rather than dragging everyone to the cinema.

It is an interesting thought for those running the property rights line at some of our biggest corporations. Take for instance Telstra who argued a case (decision pending) in the High Court that the access regime was unconstitutional as it was an unjust taking of property. I haven't fully read the transcripts, but one of the arguments is that if you choose to be a telecommunications carrier you choose to play by these rules.

It is an interesting argument because in a separate case Telstra and Optus won a case against local government authorities who wanted to charge the carriers for the above ground and underground space they occupied with cables. They won that case on the basis that the Federal telecommunications power did enable the over-riding of the State laws.

But it does seem to be a little like the Bee Movie analogy - you don't know where a property rights argument might end. Are the Council's being deprived of a property right by the Federal law, and therefore be entitled to compensation from the Commonwealth? would the Commonwealth raise this from a tax on the telcos?

This is not meant to be a legal argument here - just an argument of consequences. A similar matter also emerged in the case, that the asset of the network was always encumbered by the power of the Commonwealth Government to regulate prices.

Those who are resorting to property rights arguments might find out they have less than they ever imagined.

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