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Showing posts with label property. Show all posts
Showing posts with label property. Show all posts

Friday 21 July 2023

A Level Economics 51: Tragedy of the Commons

1. Importance of Property Rights in a Market System:

Property rights refer to the legal ownership and control that individuals or entities have over assets, resources, and goods. In a market system, property rights play a fundamental role in facilitating efficient resource allocation and promoting economic growth. Here's why property rights are essential to the functioning of a market system:

  • Incentive to Invest and Innovate: Secure property rights provide individuals and businesses with the assurance that they can enjoy the fruits of their investments and innovations. When people know they will reap the benefits of their efforts, they are incentivized to invest, take risks, and innovate, leading to increased productivity and economic growth.


  • Clear Ownership and Transferability: Property rights allow for clear ownership and transferability of assets. This enables individuals to buy, sell, or trade property, goods, and resources in the marketplace, promoting efficient allocation based on supply and demand.


  • Resource Allocation: Property rights facilitate the efficient allocation of resources by providing a framework for individuals to decide how to use and manage their property. Resources flow to their most valued uses as people make decisions based on their preferences and economic incentives.


  • Encouraging Specialization and Trade: With secure property rights, people can specialize in the production of goods and services they are most efficient at producing. This specialization leads to increased productivity and fosters trade, where individuals can exchange their products or services for other goods they desire.


  • Enforcing Contracts: Property rights are essential for enforcing contracts and agreements. When people trust that their rights will be protected, they are more likely to engage in transactions and trade with others, fostering economic cooperation.

2. Tragedy of the Commons and Market Failure: The tragedy of the commons is a situation where a commonly held, shared resource (such as a grazing pasture, fishery, or air and water quality) is overused and depleted because no individual or group has exclusive property rights over the resource. This leads to market failure and inefficiency due to the following reasons:

  • Lack of Exclusivity: When no one owns exclusive rights to a resource, there is no incentive for any individual to protect or preserve it. Each person acts in their self-interest, using the resource to their advantage without considering its long-term sustainability.


  • Overconsumption: As more individuals use the shared resource to maximize their own benefits, it leads to overconsumption and depletion of the resource beyond its sustainable capacity. This creates a situation where the resource is eventually exhausted or damaged, negatively affecting everyone.


  • Negative Externalities: The tragedy of the commons results in negative externalities, where the actions of one individual negatively impact others. For example, overfishing in an unregulated fishery leads to reduced fish populations, affecting the livelihoods of other fishermen.


  • Inefficiency: The overexploitation of the commons creates inefficiencies in resource allocation. Instead of being allocated to its most valued uses, the resource is depleted and underutilized, leading to lost economic opportunities and social welfare.

Market Failure and the Role of Government:

The tragedy of the commons is an example of market failure because the free market cannot efficiently allocate the shared resource when property rights are not well-defined. In such cases, the government can intervene through regulation, establishing property rights, or implementing policies to address the overuse of the common resource. By creating property rights or setting limits on resource use, the government can incentivize sustainable management and prevent the depletion of shared resources, leading to more efficient resource allocation and improved social welfare.




---Inequities in Property Rights


In modern-day societies, property rights can exhibit inequities that result from various factors and historical developments. These inequities can lead to disparities in access, ownership, and control of property, exacerbating social and economic inequalities. Here are some ways in which inequities in property rights manifest:

Historical Disadvantages: In many countries, historical injustices and discriminatory policies have led to certain groups, such as indigenous populations or marginalized communities, being systematically denied access to land and property ownership. As a result, they face ongoing disadvantages in acquiring and holding property.

Land Concentration: In some regions, a significant portion of land is concentrated in the hands of a small elite, while a large section of the population has limited access to land ownership. This concentration of land ownership can perpetuate economic disparities and limit opportunities for social mobility.

Urban vs. Rural Property Rights: In urban areas, property rights may be better protected and enforced compared to rural regions, where informal or customary land tenure systems prevail. This disparity can lead to greater insecurity and vulnerability for rural communities in terms of land ownership.

Gender Disparities: Women often face discriminatory property laws and cultural norms, which restrict their rights to own and inherit property. These gender disparities can limit women's economic independence and exacerbate gender-based inequalities.

Inheritance Rights*: Inequity in inheritance rights is another aspect of property rights that contributes to social and economic disparities. In some societies, inheritance laws may favor male heirs over female heirs, perpetuating gender-based inequalities in property ownership and limiting financial security for women.

Lack of Legal Recognition: In some countries, certain types of property, such as communal land or informal settlements, may lack legal recognition. This can lead to insecurity of tenure and vulnerability to forced evictions, particularly among vulnerable populations.

Gentrification: In urban areas, gentrification can result in the displacement of long-standing communities due to rising property values and rents. As wealthier individuals move in, property prices increase, making it difficult for existing residents to afford to remain in their neighborhoods.

Addressing these inequities in property rights requires comprehensive policy measures and legal reforms to ensure fair and inclusive access to property ownership and control. Governments can enact laws that protect the rights of marginalized groups, strengthen land tenure systems, and ensure gender equality in property ownership. Additionally, land redistribution programs, affordable housing initiatives, and measures to address gentrification can help promote more equitable property rights.

In conclusion, inequities in modern-day property rights are rooted in historical legacies, discriminatory practices, and inadequate legal protections. Recognizing and addressing these inequities is essential for promoting social justice, economic opportunity, and sustainable development. Governments play a crucial role in enacting policies to protect property rights and promote fair and equitable access to resources for all members of society.


---* Inequities in Inheritance Rights

Inequity in inheritance rights is another crucial aspect that contributes to social and economic disparities in property ownership. In many societies, inheritance laws and cultural norms can perpetuate gender-based inequalities and favor certain privileged groups, leading to unequal distribution of wealth and property. Here's how inheritance rights can contribute to inequities in property rights:

  1. Gender Bias: In some countries, inheritance laws may favor male heirs over female heirs, leading to gender-based disparities in property ownership. Women may face limitations in inheriting property, especially in patriarchal societies, which can restrict their economic opportunities and financial security.


  2. Primogeniture: Traditional inheritance systems in some cultures follow primogeniture, where the eldest son inherits the bulk of family property, leaving younger siblings with limited or no inheritance rights. This practice can exacerbate wealth concentration within a specific group, leading to unequal access to resources.


  3. Intestate Succession Laws: When a person dies without a will (intestate), inheritance laws dictate how their property will be distributed among heirs. In some cases, intestate succession laws may not adequately protect the rights of surviving spouses, children, or other dependents, leading to potential injustices.


  4. Wealth Concentration: Inheritance can contribute to the concentration of wealth within certain families or social classes. When large amounts of property and wealth are passed down through generations, it can perpetuate economic disparities and limit opportunities for social mobility.


  5. Informal Inheritance Practices: In many regions, informal inheritance practices may prevail, leaving vulnerable individuals, such as widows, orphans, and disadvantaged groups, without proper legal recognition of their inheritance rights. This lack of formal protection can lead to property dispossession and vulnerability to exploitation.

Addressing inequities in inheritance rights is crucial for promoting social and economic justice. Governments can play a vital role in enacting inheritance laws that promote gender equality, protect the rights of vulnerable groups, and ensure fair distribution of property among heirs. Efforts to promote legal awareness and empower marginalized individuals to claim their inheritance rights are also essential in addressing these inequities.

In conclusion, inheritance rights can significantly impact property ownership and wealth distribution in a society. Addressing the inequities in inheritance laws and cultural norms is essential for promoting equitable access to property, reducing wealth disparities, and ensuring equal economic opportunities for all members of society. Governments must actively work towards creating a fair and inclusive framework that upholds the principles of justice and equality in property rights.

Tuesday 18 July 2023

A Level Economics 25: Resource Allocation in Free Markets

The main assumptions of a free market are as follows:

  1. Perfect Competition: The assumption of perfect competition implies that there are a large number of buyers and sellers in the market, with no single entity having control over prices or market conditions. All market participants are price takers, meaning they have no influence on the market price and must accept it as given.


  2. Rational Behavior: The assumption of rational behavior suggests that consumers and producers act in their self-interest and make rational decisions based on maximizing their utility or profits. They have access to complete and accurate information and aim to optimize their outcomes given the available choices.


  3. Absence of Market Imperfections: Free markets assume the absence of external factors that may distort market outcomes. There are no barriers to entry or exit, no transaction costs, and no market failures such as externalities or public goods.


  4. Property Rights and Rule of Law: The assumption of well-defined and enforceable property rights ensures that individuals have the right to own, use, and transfer property and assets. The rule of law ensures that contracts are enforced, fraud is punished, and disputes are resolved impartially.

In a free market, the allocation of resources is determined through the interaction of supply and demand. The price mechanism plays a central role in coordinating the decisions of buyers and sellers. Here's how the market allocates resources:

  1. Price Signals: Prices act as signals that reflect the relative scarcity or abundance of goods and services. When demand for a particular good or service increases, its price rises, signaling that resources should be reallocated towards its production. Conversely, when demand decreases, prices fall, signaling a reduction in resources allocated to that product.


  2. Profit and Loss: In a free market, producers are motivated by profit. If a good or service is in high demand and prices are high, producers have an incentive to allocate more resources towards its production to earn higher profits. Conversely, if a good or service is in low demand and prices are low, producers may reallocate resources to more profitable areas or exit the market, leading to a reduction in supply.


  3. Consumer Preferences: Consumer demand and willingness to pay for goods and services influence resource allocation. As consumers express their preferences through purchasing decisions, producers respond by producing the goods and services that are in demand, adjusting production levels, and innovating to meet consumer needs.


  4. Efficient Allocation: The free market is assumed to allocate resources efficiently by directing them to the most valued uses. Through the price mechanism and competition, resources are allocated based on consumer preferences and production costs, maximizing societal welfare and economic efficiency.

It's important to note that while free markets can be effective in allocating resources and promoting efficiency, they may also have limitations and require appropriate regulations and interventions to address market failures, promote fairness, and protect public interest. The assumptions of a free market provide a theoretical framework, and in reality, markets may deviate from these assumptions due to various factors and imperfections.

Friday 25 February 2022

Boris Johnson claims the UK is rooting out dirty Russian money. That’s ludicrous

 Oliver Bullough in The Guardian

We were warned about Vladimir Putin – about his intentions, his nature, his mindset – and, because it was profitable for us, we ignored those warnings and welcomed his friends and their money. It is too late for us to erase our responsibility for helping Putin build his system. But we can still dismantle it and stop it coming back.

Russia is a mafia state, and its elite exists to enrich itself. Democracy is an existential threat to that theft, which is why Putin has crushed it at home and seeks to undermine it abroad. For decades, London has been the most important place not only for Russia’s criminal elite to launder its money, but also for it to stash its wealth. We have been the Kremlin’s bankers, and provided its elite with the financial skills it lacks. Its kleptocracy could not exist without our assistance. The best time to do something about this was 30 years ago – but the second best time is right now.

We journalists have long been writing about this, but it is not simply overheated rhetoric from overexcited hacks. Parliament’s intelligence and security committee wrote two years ago that our investigative agencies are underfunded, our economy is awash with dirty money, and oligarchs have bought influence at the very top of our society.

The committee heard evidence from senior law enforcement and security officials. It laid out detailed, careful suggestions for what Britain should do to limit the damage Putin has already done to our society. Instead of learning from the report and implementing its proposals, Boris Johnson delayed its publication until after the general election and then, when further delay became impossible, dismissed those who took its sober analysis seriously as “Islingtonian remainers” seeking to delegitimise Brexit.

That is the crucial context for Johnson’s ludicrous claim this week to the House of Commons that no government could “conceivably be doing more to root out corrupt Russian money”. That is not only demonstrably untrue, it is an inversion of reality. On leaving the European Union, we were told that we could launch our own independent sanctions regime – and this week we saw the fruit of it: a response markedly weaker than those of Brussels and Washington.

The Liberal Democrat MP Layla Moran, speaking with parliamentary privilege on Tuesday, listed the names of 35 alleged key Putin “enablers” whom the Russian opposition politician Alexei Navalny has asked to be sanctioned. Blocking the assets of everyone on that list and their close relatives would be a truly significant response from Johnson to the gravity of the situation. But it would still only be a start.

Relying solely on sanctions now is like stamping on a car’s accelerator when you’ve failed for years to maintain the engine, pump up the tyres or fill up the tank, yet still expect it to hit 95mph. Other announcements in the last couple of days have amounted to nothing more than painting on go-faster stripes. Tackling the UK’s role in enabling Putin’s kleptocracy, and containing the threat his allies pose to democracy here and elsewhere, will require far more than just banning golden visas or Kremlin TV stations.

For a start, we need to know who owns our country. Some 87,000 properties in England and Wales are owned via offshore companies – which prevents us seeing who their true owners are or if they were bought with criminal money. Companies House makes no checks on registrations, which is why UK shell structures have featured in most Russian money-laundering scandals. Imposing transparency on the ownership of dirty money in this way would strike at the heart of the London money-laundering machine.
Governments have promised to do this “when parliamentary time allows” for years, yet the time has never been found, and instead they’ve listened to concerns from the City that such regulations would harm its competitiveness.

Above all, we need to fund our enforcement agencies as generously as oligarchs fund their lawyers: you can’t fight grand corruption on the cheap. Even good policies of recent years, such as the “unexplained wealth orders” of 2017, which were designed to tackle criminally owned assets hidden behind clever shell structures, have largely failed because investigators lack the funds to use them. We must spend what it takes to drive kleptocratic cash out of the country.

Johnson is not the first prime minister to fail to rise to the challenge – Tony Blair and David Cameron both schmoozed with Putin even when it was obvious what kind of a leader he was. And I don’t think Johnson is personally corrupt or tainted by Russian money; he’s lazy, flippant and unwilling to launch expensive, laborious initiatives that will bring results only long after he himself has left office and is unable to take the credit for them. It is time, however, for his colleagues to step up and force him into action. This is a serious moment, and it requires serious people willing to invest in the long-term security of our country and the future of democracy everywhere.

Tuesday 15 December 2020

Do rich countries undermine democracies in developing countries? Economic History in Small Doses 3

Girish Menon*

The IMF led consortia (World Bank, WTO…), have represented the interests of the rich countries. Historically, they have advocated free market policies in developing countries. Whenever such weak economies got into economic trouble the consortia have insisted on harsh policy changes in return for their help. By such acts, are the rich countries really helping the growth of democracy in developing countries?

---Also read




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Free market policies have brought more areas of our life under the ‘one rupee one vote’ rule of the market. Let us examine some of these policies:

The argument is framed thus, “politics opens the door for perversion of market rationality; inefficient firms or farmers by lobbying their politicians for subsidies will impose costs on the rest of society that has to buy expensive domestic products.” The current farmers’ agitation in India is being tarried with this brush.

The free marketer’s solution is to ‘depoliticize’ the economy. They argue that the very scope of government activity should be reduced to a minimal state through privatisation and liberalisation. This is necessary, they argue, because the politicians are less competent and more corrupt. Hence, it is important for developing countries to sign up to international agreements like the WTO, bilateral/free trade agreements like RCEP or TPP so that domestic politicians lose their ability to take democratic decisions.

The main problem with this argument for depoliticization is the assumption that we definitely know the limits where politics should end and where economics should begin. This is a fundamental fallacy.

Markets are political constructs; the recognition of private ownership of property and other rights that underpin them have political origins. This becomes evident when viewed historically. For example: certain tribes have lived in the woods for centuries until the point when this land is sold off by the government to a private landowner and then these tribespeople now become trespassers on the same land. Or the re-designation of slaves from capital to labour was also a political act. In other words the political origins of economic rights can be seen in the fact that many of these rights that seem natural today were once hotly contested in the past.

Thus when free marketers propose de-politicizing the economy they argue that everybody else accept their demarcation between economics and politics. I agree with Ha Joon Chang when he argues that ‘depoliticization of policy decisions in a democratic polity means – let’s not mince our words – weakening democracy.’

In other words, democracy is acceptable to free-marketers only if it does not contradict their free market doctrine. They want democracy only if it is largely powerless. Deep down they believe that giving political power to those who do not have a stake in the free market system will result in an ‘irrational’ modification of property and other economic rights. And the free-marketers spread their gospel by subtly discrediting democratic politics without openly criticising democracy.

The consequences have been damaging in developing countries, where the free-marketers have been able to push through anti-democratic actions well beyond what would be acceptable in rich countries.


* Adapted and simplified by the author from Ha Joon Chang's Bad Samaritans - The Guilty Secrets of Rich Nations & The Threat to Global Prosperity