Recht und Ökonomie (Law and Economics)

Transcription

1 Prof. Dr. Friedrich Schneider Institut für Volkswirtschaftslehre Recht und Ökonomie (Law and Economics) LVA-Nr.: SS 2017 (4) Property Rights [Eigentumsrechte] SS 2017 Law & Economics 1 / 47

2 Content (1-2) (1) Property Rights: Introduction Definition of Property Rights Private vs. Common Ownership Design of Norms Public Goods & Services Incentives (2) Property Rights: Criteria for an Efficient System Universality / Exclusiveness & Tragedy of the Commons / Transferability (3) Exchange & Transaction Costs (4) Protection of Property Rules for Protection The Role of Transaction Costs Independence From Assignment of Property Rights SS 2017 Law & Economics 2 / 47

3 Content (2-2) (5) Property Rights: Development & Implementation Factors Advancing Development of PRs Implementation of Property Rights (6) Intellectual Property Rights (Patents) Basics Patents (Features, Disadvantages, Duration, Breadth, Innovation) (7) Property Rights: Further Topics Externalities (Basics, Property Rights, Example) Expropriation Regulation SS 2017 Law & Economics 3 / 47

4 1. Property Rights: Introduction 1.1. Definition of Property Rights Property (rights) can be defined as: A bundle of rights; a method of assigning to particular individuals or groups the authority to select any use for specific resources. Property rights [ Eigentumsrechte ] go beyond legal definition since they include also social norms. Property rights form the basis for negotiations about these rights. SS 2017 Law & Economics 4 / 47

5 1. Property Rights: Introduction 1.1. Definition of Property Rights (cont.) Legal property rights of an individual over asset recognized & enforced by government. Economic property rights of an individual ability to consume goods / services of the asset directly or to consume it indirectly by exchange includes: rights to use the asset; rights to the return from use contract over terms with other individuals; and earn income from asset and rights to transfer those rights (e.g. ownership) to another party. SS 2017 Law & Economics 5 / 47

6 1. Property Rights: Introduction 1.2. Private vs. Common Ownership Private ownership: Individuals. Clearly defined (small) groups of individuals. Common ownership [ Gemeinschaftseigentum ] : Only members of a group have access to resource. Public in general owns property rights. SS 2017 Law & Economics 6 / 47

7 Basic question: 1. Property Rights: Introduction 1.3. Design of Norms How are the (approved behavioural) relations among individuals organized with respect to the use of resources or goods? Design of norms to be observed: Limitations of use: e.g. zoning law [ Flächennutzungs- Gesetz ] no factory in residential neighbourhoods. Restrictions on returns (e.g. price controls, taxation). Specific rules for transfer (e.g. land). SS 2017 Law & Economics 7 / 47

8 1. Property Rights: Introduction 1.4. Public Goods & Services Two essential features of public goods & services: (1) Non-excludability [ Nichtausschließbarkeit ] of non-payers / free riders [ Trittbrettfahrer ] from consumption or exclusion only with disproportionate (monetary) effort possible; (2) Non-rivalry [ Nichtrivalität ] of consumption by additional consumers. Examples: Fireworks, street lighting, national defence, SS 2017 Law & Economics 8 / 47

9 1. Property Rights: Introduction 1.4. Public Goods & Services (cont.) Problems regarding public goods & services: The individuals will not reveal their true willingness-to-pay [ Zahlungsbereitschaft ] for consumption value of supply =??? Non-excludability of non-payers how to cover the costs of supply? Consequences due to problems: Service will not be offered by a private market. Government should provide the good / service. SS 2017 Law & Economics 9 / 47

10 1. Property Rights: Introduction 1.5. Incentives Design of property rights is economically important. Actions usually cause costs and lead to returns (e.g. investment). An actor (business firm, individual, ) initiating an action does not necessarily bear all the costs or reap all the benefits of that action. Relevant: Will the returns accrue to the individual that incurs the costs of action? SS 2017 Law & Economics 10 / 47

11 1. Property Rights: Introduction 1.5. Incentives (cont.) Efficient incentives [ Anreize ] require: the decision maker [ Entscheidungsträger ] has to bear all costs and should receive all returns principle of internalization [ Internalisierung ]. Consequences of actions, previously not taken into account ( externalities), are now taken into account when making decisions. SS 2017 Law & Economics 11 / 47

12 2. Property Rights: Criteria for an Efficient System Criteria for an efficient system of property rights (PRs): (1) Universality [ Allgemeingültigkeit ] All scarce [ knapp, mangelnd ] resources should be owned (or possible to own) by someone. (2) Exclusiveness [ Exklusivität ] Right to exclude other from use of a resource. (3) Transferability [ Übertragbarkeit ] Ability to transfer rights to others (e.g. from a less productive use to a more productive use through voluntary exchange). SS 2017 Law & Economics 12 / 47

13 2.1. Criteria: Universality Assume a society without property rights. Example: Farmer sows, but since there is: no ownership of land, and no protection against harvesting by someone else, additional costs arise: o guarding future harvest [ Ernte ] ; o looting someone else s harvest! More efficient: legal protection. Establish property rights! SS 2017 Law & Economics 13 / 47

14 2.2. Criteria: Exclusiveness Possibility to exclude others from using the resource within legal (!) limits creates incentives to take measures to: increase value of resource; and/or avoid damaging activities. Incentive to invest: Both risk and potential return are in sphere of influence [ Einflussbereich ] of the individual. Option: Common ownership leads to inefficiency due to overuse Tragedy of the Commons. SS 2017 Law & Economics 14 / 47

15 2.2. Criteria: Exclusiveness Tragedy of the Commons Tradegy of the Commons [ Tragik der Allmende ] Example: Commonly owned grazing land [ Weideland ]. Each member of the community wants to maximize his / her profit he / she equates: marginal costs (MC) = additional cow; and marginal revenue (MR) = additional milk / meat. Neglected by each member (when deciding): Costs inflicted upon other members of the community less grass and lower yield for other members. Result: Overuse suboptimal. SS 2017 Law & Economics 15 / 47

16 2.2. Criteria: Exclusiveness Tragedy of the Commons (cont.) Consumption rivals, but exclusion is not possible due to common ownership [ Gemeinschaftseigentum ]! Can be applied to fisheries, hunting, Possible solutions: Joint decision by all resource users; or individual private property of grazing land [ Weideland ] user fee [ Nutzungsgebühr ]. SS 2017 Law & Economics 16 / 47

17 2.3. Criteria: Transferability If a resource is valued differently by individuals, the person with the highest valuation should receive it. Example: A piece of land is valued at 1,000 by person A (= current owner) and at 1,500 by person B (= potential buyer). Difference in valuation = 500 = cooperative surplus [ kooperativer Gewinn ]. Achievement of higher return by transferring it from person A to person B at a price between 1,000 and 1,500 (e.g. 1,250 ). SS 2017 Law & Economics 17 / 47

18 2.3. Criteria: Transferability (cont.) Transferability is relevant for division of labour. Rights can also be transferred partially, e.g. leasing transfers the right to return, but not ownership! Important concept: Transaction costs [ Transaktionskosten ] (abbreviated TC). Postulate: TC should be kept as low as possible! Well functioning markets and well functioning legal systems (enforcement of contracts!) help to reduce TC minimization of TC. SS 2017 Law & Economics 18 / 47

19 3. Exchange & Transaction Costs Basically: Transaction costs = costs of exchange. Coase Theorem: If transaction costs are zero, bargaining will lead to an efficient allocation of resources, regardless of the law. Law is only necessary to induce efficient behavior when transaction costs are positive. Transaction costs according to R. H. Coase: Costs of using the market : arise from exchange activities e.g. transfer of property rights! SS 2017 Law & Economics 19 / 47

20 3. Exchange & Transaction Costs (cont.) Transaction costs arise from (among other things): Obtaining information. Establishing contacts. Negotiations, contract formulation. Lawyer s fees [ Rechtsanwaltsgebühren ]. Processing costs (e.g. transport). Control (acceptance of delivery / of construction). SS 2017 Law & Economics 20 / 47

21 3. Exchange & Transaction Costs (cont.) General steps of an (market) exchange: 1. Search costs [ Suchkosten ] (for exchange partner). 2. Bargaining costs [ Verhandlungskosten ] (negotiations). 3. Enforcement costs [ Durchsetzungs-, Vollziehungskosten ] (monitoring performance; punishing violation [ Verletzung, Nichteinhaltung ] of agreement). SS 2017 Law & Economics 21 / 47

22 3. Exchange & Transaction Costs (cont.) Search costs [ Suchkosten ] : Tend to be high for unique goods and services, and low for standardized goods and services. Bargaining costs [ Verhandlungskosten ] : Bargaining becomes more costly and difficult as it involves more (than two) parties. Enforcement costs [ Durchsetzungs-, Vollziehungskosten ] : Arise when agreement takes time to fulfil. Low when violations of agreement are easy to observe and punishment is cheap to manage. SS 2017 Law & Economics 22 / 47

23 3. Exchange & Transaction Costs (cont.) Table 3.1: Factors affecting size of transaction costs (abbreviated TC). Lower TC Higher TC Standardized goods or services Unique goods or services Clear, simple rights Uncertain, complex rights Few parties Many parties Friendly parties Hostile parties Familiar parties Unfamiliar parties Reasonable behaviour Unreasonable behaviour Instantaneous exchange Delayed exchange No contingencies [ Eventualfälle ] Many contingencies Low costs of monitoring High costs of monitoring Cheap punishments Costly punishments Source: Law & Economics (Robert Cooter & Thomas Ulen, 5th ed., 2008), p. 94. SS 2017 Law & Economics 23 / 47

24 4. Protection of Property 4.1. Rules for Protection Protection of property: Provided privately or by state. Question: Who pays (how much) for public protection? Problem of public goods & services [ öffentliche Güter & Dienstleistungen ] important factor: non-excludability [ Nicht-Ausschließbarkeit ] of consumers! In principle, there are two rules for protection: (1) Property rule [ Eigentums-Regel ]. (2) Liability rule [ Haftungs-Regel ]. SS 2017 Law & Economics 24 / 47

25 4. Protection of Property 4.1. Rules for Protection (cont.) Example two protection-rules: A hydro-electric power plant [ Wasserkraftwerk ] (abbreviated HEP) floods land that is owned by farmers. HEP should be built if (expected) return [ (erwarteter) Ertrag ] of HEP is larger than (expected) return on farmland. Assumption: Negotiation costs (= transaction costs) are zero for HEP and for farmers! SS 2017 Law & Economics 25 / 47

26 4. Protection of Property 4.1. Rules for Protection (cont.) Property rule [ Eigentums-Regel ] : Requires that farmers agree to HEP payment. Contracts between HEP and farmers are needed. Liability rule [ Haftungs-Regel ] : Entitles farmers to damages [ Schadenersatz ]. No contracts needed, but assessment by third party required (for damages). Without transaction costs: Both rules lead to the same payment (fairness assumed)! SS 2017 Law & Economics 26 / 47

27 4. Protection of Property 4.2. The Role of Transaction Costs Transaction costs Problems with property rule: Negotiations with owners of farmland: How many persons negotiate (1, 10, more persons)? Public good problem : If owners pay HEP-operator for not flooding land socially rational for all owners to contribute, but individually rational for each owner to try to pay nothing (= free ride ). SS 2017 Law & Economics 27 / 47

28 4. Protection of Property 4.2. The Role of Transaction Costs (cont.) TC Problems with property rule [continued]: Hold-out-problem : Many owners + each of them must agree (e.g. several parcels of land for one infrastructure project like HEP). A single owner might increase his monetary demand, others may follow owners have an incentive to hold out for a larger share of the money which the operator (HEP) will pay for the allowance to flood the land (or to make noise / pollute). SS 2017 Law & Economics 28 / 47

29 4. Protection of Property 4.2. The Role of Transaction Costs (cont.) Transaction costs Problems with liability rule [ Haftungs-Regel ] : Costs of assessment, legal costs (e.g. lawyer fees), Size of damage: Difference between subjective (emotional) value and objective value of damage. SS 2017 Law & Economics 29 / 47

30 4.3. Independence From Assignment of Property Rights HEP-example: Again assume no transaction costs! Important result: The outcome (solution) of the problem at hand will be independent from original ownership of the resource (here land of farmers): When the net return (profit minus loss) is positive, hydro-electric power plant (HEP) will be built! Relevance of original ownership only for distribution: If HEP is given the right to flood, its profits will be higher since no payments to farmers are required! SS 2017 Law & Economics 30 / 47

31 5. PRs: Development & Implementation 5.1. Factors Advancing Development Factors advancing development of property rights (abbreviated PRs): Large expected aggregate efficiency [ Effizienz ] gains. Few interest groups [ Interessensgruppen ] no preferential treatment of certain groups. Small differences among groups. General availability of information. Equal distribution of gains and losses. SS 2017 Law & Economics 31 / 47

32 5. PRs: Development & Implementation 5.2. Implementation of Property Rights Define and specify legally enforceable property rights (abbreviated PRs). Provide rules for transfer of rights. Provide procedures for creation and recognition [ Anerkennung ] of new PRs. Establish a system to resolve disputes (procedures, remedies [ Abhilfen, Rechtsmittel ], penalties). Guarantee certainty and stability in PRs. Allow for adjustments to new needs; property rights in the past & today internet. e.g. intellectual SS 2017 Law & Economics 32 / 47

33 6. Intellectual Property Rights (Patents) 6.1. Basics Forms: Patent, copyright, trademark [ Waren-, Marken-zeichen ], trade secret [ Betriebs-, Geschäftsgeheimnis ]. Why is special protection required? Copying is easily possible. Without: Development costs could not be recovered. Without: Little incentive to develop new products or processes. Without: Less increase in productivity (efficiency). SS 2017 Law & Economics 33 / 47

34 Example: Patent system Patents Features Patent = temporary exclusivity for non-obvious [ nicht offensichtlich / naheliegend ] and novel [ neue, neuartige ] products or processes. Creates an exclusive property right in an invention. Granting of patents [ Patentvergabe ] two dimensions: Breadth (extent of innovation: broad or narrow). Duration (time period of exclusivity (lifetime)). SS 2017 Law & Economics 34 / 47

35 6.2. Patents Features (cont.) Patent is publicly disclosed (no public good). Copying is prevented. Complements / substitutes can be developed. Alternative to patent: Trade secret gives first mover advantage, no developments possible! Too little technical progress without patents!? Important: Cost coverage of previous research and development [ Forschung & Entwicklung ] (abbreviated R&D). SS 2017 Law & Economics 35 / 47

36 6.2. Patents Disadvantages Patents (potentially) create monopolies [ Monopole ] : Prices above marginal costs (MC), loss in consumer surplus [ Konsumentenrente ]. Static inefficiency [ statische Ineffizienz ] (Excessive) market power [ Marktmacht ] deters entry and thus (potentially) the development of competitive products or more efficient processes. Dynamic inefficiency [ dynamische Ineffizienz ] SS 2017 Law & Economics 36 / 47

37 6.2. Patents Duration of a Patent Optimal duration [ Laufzeit, Gültigkeitsdauer ] of a patent =? The longer patent lifetime the more incentive for R&D due to profits, but the longer dissemination of knowledge is hindered. Economic optimum = number of years that equalizes: Marginal Social Benefit [ gesellschaftlicher Grenznutzen ] of inventive activity, and Marginal Social Costs [ gesellschaftliche Grenzkosten ] : o higher prices & lower output ( monopoly [ Monopol ] ); o less dissemination [ Verbreitung ] of knowledge. SS 2017 Law & Economics 37 / 47

38 6.2. Patents Breadth of a Patent Breadth [ Breite, Umfang ] : How similar can be another invention, without hurting patent for existing invention. How broad should a patent be granted? Greater granted patent breadth means larger social loss: o fewer close substitutes (more protection); o less dissemination [ Verbreitung ] of knowledge. Optimal patent duration & breadth: variable scope of protection [ Schutzumfang ]! Variable lifetime & SS 2017 Law & Economics 38 / 47

39 6.2. Patents Innovation Aspects Patents encourage inventions and innovation!? Patents prevent innovative activities through (threats of excessive) litigation [ Gerichtsverfahren, Prozess, Rechtsstreit ]!? Patent wars regarding software patents (Apple, Google, Microsoft, Samsung, ). In 2011, Apple and Google have spent more (!) money on legal disputes and on the purchase of patents as for their own research and development. SS 2017 Law & Economics 39 / 47

40 7. Property Rights: Further Topics Externalities: Basics Externality = Activity of one economic actor (A) has impact on another actor s (B) property rights; impact on B is not taken into account by A when deciding. Economic actors = Producers (e.g. business firm), consumers. Distinction of externalities [ Externalitäten ] / external effects [ externen Effekten ]: Positive (e.g. vaccination [ Schutzimpfung ] ). Negative (e.g. air pollution [ Luftverschmutzung ] ). SS 2017 Law & Economics 40 / 47

41 7. Property Rights: Further Topics Externalities: Basics (cont.) Focus on negative external effects action leads to a reduction in value of property. Consequence of negative external effects: Economic inefficiency, because output is too large. Solution: Internalize externalities externalities will be taken into account when deciding. Options: Command or forbid by law; establish procedure to obtain operating licence; use taxation [ Besteuerung ] ; use trading system [ Handelssystem ] for damages. SS 2017 Law & Economics 41 / 47

42 7. Property Rights: Further Topics Externalities & Property Rights Theorem: If transaction costs are zero then the original assignment of property rights (PRs) is of no relevance for the resulting allocation. Distribution may very well be affected. Basic principle (again): Unambiguous assignment of property rights leads to optimal outcome. Important: Zero (or near zero) transaction costs. Devise legal system to minimize transaction costs! SS 2017 Law & Economics 42 / 47

43 7. Property Rights: Further Topics Externalities: Example Railroad & Farmland (Historical) example: Railroad (abbreviated RR) next to agriculturally used land (e.g. cultivation of wheat). Steam locomotives distribute sparks on nearby land, can cause burning of crop [ Getreide ] on land owners (caused by RR). Will the RR be operated? Assumption regarding emission: Emission right for RR is valued at 10,000. Emission reduces value of land by 5,000. external effect SS 2017 Law & Economics 43 / 47

44 7. Property Rights: Further Topics Externalities: Example Railroad & Farmland (cont.) Allocation of rights: If RR has right to emission Yes to operation of RR! If land owners have the right to no (zero) emission: RR must pay compensation, between 5,000 and 10,000 Yes to operation of RR! Decisive for compensation (in this example) is initial allocation of rights: Result (= operation of RR) is equal; wealth distribution would be different! SS 2017 Law & Economics 44 / 47

45 7. Property Rights: Further Topics 7.2. Expropriation Expropriation [ Enteigung ] in economic terms = forced sale of property (rights). Preferred: Voluntary sale to party with highest valuation of property (e.g. a piece of land). Crucial question: What price should be paid for compensation? Objective vs. subjective valuation. o Objective: Discounted present value of income stream. o Subjective: E.g. emotional value (inheritance [ Erbschaft ] ). SS 2017 Law & Economics 45 / 47

46 7. Property Rights: Further Topics 7.3. Regulation Regulation: Property rights remain with original owner. Limitations (by regulation) concern usage of resource. Value of a resource is influenced directly. Complex and detailed legal requirements regarding usage of resource (in future) may be necessary. Examples for regulation [ Regulierung ] : Privatization (e.g. former state monopoly)! Bus service: Prices, frequency / quality of service, Environmental regulations (e.g. harmful substances). SS 2017 Law & Economics 46 / 47

47 7. Property Rights: Further Topics 7.3. Regulation (cont.) Potential problem regarding (first) regulation of branches / companies (e.g. environmental regulations): Company is (normally) better informed than regulator owner knows more about internal (technical) production processes, actual internal costs, and expected costs due to regulation situation of asymmetric information! Argument of company against regulation: Conditions of regulation would be too expensive threat of job reductions! How external verification by government agency? SS 2017 Law & Economics 47 / 47