Knowledge And Decisions

By creating monitors with a vested interest in the maximization of a given set of values, property rights reduce the social cost of monitoring efficiency. In systems of nontransferable property, the monitor’s incentives are to maximize those values realizable during his own tenure, whether as inheritor of an entailed estate or as a member of a modern planning commission with a fixed term. Where the property is transferable at will, the present value of a property at any given time includes future values realizable long after the time horizon (or even lifetime) of the existing property holder, who therefore has no incentive to restrict his maximization to the short run. In socialist systems, property transfers take place through political decisions to replace members of the planning bodies or to reorganize the planning structure itself. The property itself never belongs to those individuals, but they benefit both financially and psychically from managing it, and visibly successful management may create a capital gain in the form of increased likelihood of promotion to higher levels of pay or power. All of this provides short-run incentives for short-run maximization of politically visible values. Morality, ideology, or a sense of history must then be relied upon as incentives for longer-run maximization policies. That such incentives apply to only a limited number of individuals, or to individuals in only a limited number of positions of historic visibility, may be indicated by the fact that long-run investments in the Soviet economy are directed by only a few people at a time. Under short-run incentive structures, individual decision-making units tend to avoid technological innovations with short-run costs and long-run benefits “as the devil shies away from incense,” to quote Soviet Premier Brezhnev in a complaint about Soviet managers.²⁰

Because property rights are essentially rights to exclude, with the aid of force supplied by the government, the costs to be weighed in this social trade-off are the costs paid not only by those excluded but by the society at large. Indeed, when an economy is recognized as a rationing scheme that must deny most things to most people (few individuals could afford to buy one of every item produced in the whole economy), this question reduces to the losses sustained by society at large. Patent rights exclude alternative producers from supplying the patented goods, reducing competition and the efficiency which depends on it. Copyrights reduce the dissemination of knowledge and entertainment, by pricing some potential users out of the market with royalty requirements. With both patents and copyrights, it is not the royalties actually paid that constitute the social loss; these are only internal transfers. It is the transactions that do not take place because of prospective royalty charges that constitute the net social loss. The cost of policing property rights is also a social consideration involved in a trade-off against the benefits. The whole costly apparatus of title records, title search, civil court systems, marshals for evictions, etc., are part of the cost of property rights in general, and of highly fragmented property ownership in particular. The costs may also include losses to those individuals intended to be benefitted.

Rights in general may be conferred for individual as well as social benefit. Property rights are intended to secure gains to society at large, including numerous persons who own no significant property. This point is insisted upon in socialist ideology, where the government holds property rights “for the benefit of the people,” but it is also implicit in capitalist private property right law as well, where it is the social expediency rather than the individual gain that is the controlling rationale.²¹ However, there are many rights intended to benefit primarily or exclusively those to whom the rights directly apply. Civil rights laws, for example, are generally intended to benefit racial or ethnic minorities, and minimum wage laws are generally intended to benefit low-wage employees. The appropriate question here is the trade-off of costs and benefits for those subsets of the population, as well as for the population at large.

EQUAL RIGHTS VERSUS SPECIAL RIGHTS