Property rights define the ability of individuals or firms to own, buy,sell,and use the capital goods and other property In a market economy. The Se rights are enforced through the legal framework. which constitutes the set of laws within which an economy operates. An efficient and acceptable the legal framework for a market economy includes the definition of property rights, the laws of contract, and a system for adjudicating disputes.
As the ex-communist countries are discovering, it i$very difficult to have a market economy ‘when there are no laws enforcing contract or guaranteeing that a company can keep its own profits. And when the legal framework breaks down, a! in the former Yugoslavia or in drug-producing countries like Colombia, people begin to fear for their lives and have little time or Inclination to make long-term Investments for the future. Production fall$ and ‘the quality of life deteriorates. Indeed. many of the most horrifying African farmlands _re caused by civil war and ,the breakdown In the deplore, not by bad weather.
The environment is another. example where potful designed property titlists harm the economy. Water and air are generally open-access resources, meaning &,that noon owns and controls them. As the salience IONS. “Everyone’s business is nobody business:’ As a result, people do not weigh all the com of their actions. Someone mi&ht throw trash Into the water or emit snob Into the air because the costs of dilly water or foul air are borne by other people. By contrast, people are less likely to throw trash on their own lawn or bum coal In their own Calvin room because they themselves will bear the costs.
In recent years, economics have proposed extender property rights to environmental commodities by selling .er auction pelts to pouter and allowance them to be , traded on markets. Preliminary evidence suggest that this extension of property rights has given much more powerful Incentives to reduce pollution efficiently.
Specialization. trade. money. and capital form the.key to the productiveness of an advanced economy. But note as well that they are closely interrelated. Specialization creates enormous inefficiencies, while increased production makes trade possible.
Use of money allows trade to take place quickly and efficiently. Without the facility for trade and exchange that money provides, an elaborate division of labor would not be possible. Money capitalist, are related because the funds for buying capital goods are funneled through financial markets, where people’s savings can be transformed -into . other people’s capital.
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