Proprietary Rights: Everything You Need to Know
Proprietary rights, also known as property rights, are the theoretical or legal rights that an entity has to own property, whether tangible or intangible.10 min read
What Are Proprietary Rights?
Proprietary rights, also known as property rights, are the theoretical or legal rights that an entity has to own property, whether tangible or intangible. Property rights are some of the most basic rights in a free society. They give individuals the right to accumulate, own, hold, delegate, rent, or sell their property. Within economics, property rights form the basis for all market exchange, and they don't always refer only to what's lawful. They might also refer to what is ethical or moral.
The definition of property is expansive. Property can include physical resources, land, non-human creatures, and intellectual property.
Who has the right to what property isn't always clear. If you own a car and the title is in your name, you have property rights to that car. Not every case of property rights is this clear-cut. Courts are filled with claims to property rights that are disputed by other parties.
There are many types of property:
Real Property Rights
Real property is one of the major types that has property rights disputes. Real property is defined as land and objects on it. The perception of property rights varies widely when it comes to land.
In general, most people agree that the real property owner has property rights over stationary objects located on the land, such as a home, trees, plants, rocks, minerals, and crops. On the other hand, there are many disagreements over things that move across property, such as animal life and water.
These are the situations that make the laws and beliefs on property rights murky. It's common for two people to disagree in property rights disputes because each person has his own belief on what is morally or ethically right and how to interpret the written laws.
History shows us that land and property rights often result in wealth and power for individuals.
Private Property Rights
Private property rights form one of the major pillars of a capitalist economy, a legal system, and a moral philosophy. Private property rights allow an individual the ability to exclude others from use or benefit of his or her property.
Private property rights can be granted to an individual, which can be understood to mean a person, group of people, corporation, or nonprofit entity.
There are three attributes to private property rights:
The right to determine the use of the property
The right to income or proceeds from property
The right to delegate, sell, or rent any portion of the rights to the property
The Right to Determine the Use of Private Property
The owner of private property has the right to determine how that private property is used. For example, the owner of an apartment can choose to live in it himself, rent it to another person, leave it vacant, or use it in any other peaceful way.
The Right to Income
The owner of private property also has the right to all of the income or proceeds that are made from the delegation of the property. Returning to the previous example, the owner of the apartment has the right to rent the apartment. The owner of the apartment also has the right to all of the rent that comes in as an effect of his renting the property.
The Right to Delegate Rights
The owner of a property has the right to delegate, sell, or rent any portion of the right to his property. This means that the owner of the apartment can sell the apartment at any time. If the owner of the apartment sells his full share in the apartment, he has given the ownership and the property right to the apartment to the new owner.
Communal or Government Property
Communal and government property are legally owned by groups, but the rights are enforced by individuals with political or cultural power.
Acquiring Property Rights
The way that individuals gain property rights depends upon the freedom of exchange of property rights within a country or culture.
In a regime that has no private property rights, ownership and property rights are given out by force. Ownership rights are generally managed by the government in such situations. The government in a system with no private property rights decides who may interact with, be excluded from, or may benefit from the use of a property. Typically, property is awarded for political gain instead of economic gain.
In contrast to this, there are governments and cultures that allow for a freedom to trade property rights by individuals. In a society such as this, property rights can be transferred, sold, and acquired from other individuals in a mutually agreed upon transfer. This can be a sale, trade, rent, inheritance, charity, gambling, or sharing.
Within this system, there is also sometimes the option for homesteading, where an individual acquires rights to unowned property by mixing his labor with the resource over time.
Market Prices for Property Rights
The market price for property is determined by the value the property has to the individuals interested in it.
When an individual chooses to sell his property rights, he decides upon the value of the property. A buyer then determines whether this value is useful to him, and they may negotiate. This only works in a voluntary, capitalist society.
Property Rights and Human Rights
Many social critics have complained throughout history that property rights take advantage of certain people and create inequality throughout a society. They think that putting property rights over human rights is a problem. What they have misunderstood is that property rights are human rights.
Property rights and deciding the allocation and protection of property is one of the most complex issues that a society must face and resolve. Many critics who believe that human rights should be set above property rights want to shift property rights from the people to the government. What they don't understand is that this won't effectively fix the problem of inequality within the society. Transferring some, but not all, property to public ownership may be beneficial.
Detrimental Restrictions on Property Rights
Restrictions on property rights may seem to improve the market, but they're actually detrimental to society.
The market values of private property reflect the preferences and demands of the society. It doesn't matter who the owner of the property is, the rest of society decides what the market value and most profitable use are. If the owner chooses to use the property for another purpose, society will prove that that's not the most profitable use.
Private citizens make individual decisions about their private property, but those private decisions are influenced by public or social opinion.
Property rights are intended to eliminate destructive competition for resources. Successfully designed property rights eliminate violent competition and replace it with peaceful competition.
Market values become more influential when property rights properly protect resources. Personal status and attributes then become less important.
Consider rent controls. When the government steps in and places controls on rent that are below the level set by the free market, it doesn't eliminate the competition for apartments. This type of restriction moves competition from monetary exchanges to that of personal characteristics. This increases the likelihood of discrimination based on age, sex, ethnicity, and religion.
When property rights are weakened to the extreme, there are two outcomes: socialism and commonly owned resources. Common property means that the property is jointly owned and managed. Examples of this are grazing on public lands and fishing in the open ocean. Because different groups will have differing opinions on how to manage these resources, common property laws can be highly controversial.
Country Grading of Property Rights
The ability of individuals to accumulate private property rights is measured and graded in each country. To receive a high score, the country must have secure, clear, fully enforced laws that protect private property rights.
The lower the possibility of corruption and the easier it is for people to enforce their private property right, the higher the score.
The score breakdown is as follows:
100: The government guarantees private property. The courts enforce contracts efficiently and quickly. Those who unlawfully take private property are punished. There is no corruption.
90: The government guarantees private property. The courts enforce contracts efficiently. Those who unlawfully take private property are punished. There is nearly no corruption.
80: The government guarantees private property. The courts enforce contracts efficiently, but has some delays. Corruption is minimal.
70: The government guarantees private property. The courts are delayed and are lax in enforcement of contracts. Corruption is possible but still rare.
60: The courts are lax and subject to delays when enforcing property rights. They may be influenced by other branches of government. Corruption is possible but rare.
50: The courts are inefficient and often have delays. The courts may be influenced by other branches of government and corruption may be present.
40: The courts are highly inefficient and delays are extensive. Delays may deter the use of the court system. Corruption is present and the courts are influenced by other branches of government.
30: Property ownership rights are weakly protected. The courts are highly inefficient. Corruption is extensive and the courts are strongly influenced by other branches of government.
20: Private property is weakly protected. The courts are highly inefficient. Corruption is extensive and the courts are strongly influenced by other branches of government.
10: Private property is rarely protected and almost all property belongs to the state. Protection of property is almost impossible to enforce because the state is in chaos. Property is not protected effectively because the courts are so corrupt.
0: Private property is illegal. All property belongs to the state. People don't have the right to sue others and don't have access to a court system. Corruption is endemic.
On this scale, the U.S. is ranked number 17 out of 180, with a score of 75.1. The country with the highest score is Hong Kong at 89.8 and the lowest is North Korea at 4.9.
Some countries aren't ranked, including Iraq, Somalia, Libya, Syria, Yemen, and Lichtenstein.
Historical Perspective on Property Rights
In general, people have perspectives on property rights, whether it's their own property rights, some else's rights, or the rights of a community.
Discussions on property rights bring forth a lot of controversial and diverse opinions. Property rights are related to land use, regulation, planning, and other aspects.
Origins of Property Rights
Property rights derive from community and culture. A single person living alone doesn't worry about property rights. Only groups of people worry about them. A group of people must define and enforce the rules and regulations about who has access to and can benefit from property.
The definition of property rights has changed drastically over time. Property rights in the U.S. have been changed and debated since the founding of the country.
Benefits of Property Rights
Property rights give the property owner several benefits, often known as a "bundle."
For landowners, the property rights bundle may include:
But the community also has its own bundle of rights. Those rights might include:
Taking for public use
These benefits may be added to or taken away over time as opinions and regulations of property rights change. An example is the concept of "fee simple absolute," the basic form of property ownership in the U.S.
In the 1800s, the federal government could extract minerals from fee simple absolute land. By 1900, the government abandoned this mineral rights claim and recognized that a fee simple absolute property owner had rights to both the surface and the sub-surface of his land.
In some societies, property rights may be "unbundled" and parceled out among many entities according to written contracts. Examples could be the separation of mineral rights from surface rights (as above), utility easements, and restrictive deed covenants.
Types of Property Rights
Property rights are determined by the transaction costs associated with those rights. The transaction costs include defining, monitoring, and enforcing of the property rights.
There four types of property rights, with transaction costs ranging from low to high.
Open access property: This type of property isn't owned by anyone. No one can be excluded from using this property. No one manages the use of the property and access isn't controlled. Because there's no management, one person's use may reduce the quality or quantity for others.
State property: This is also known as public property. This type or property is owned by everyone but is managed by the state. An example of state property is national parks.
Common property: This is also known as collective property. Common property is owned by a group of individuals. The owners control access, use, and exclusion.
Private property: This type of property is managed and controlled by a private owner or group of owners.
There are three types of state or public property.
Open: This type of property isn't governed, and everyone can use it.
Closed: This is jointly managed and owned. Those who own and manage it can control, limit, and define rules of access.
State: This type has government managers who make decisions and rules about access.
Defending Property Rights
Property rights are put into place to control, monitor, and exclude the use of the property by others. Property rights can protect land, goods, services, and finances associated with the property.
Corruption increases the financial costs of property because it distorts the market. Property rights are most often defended through laws and legal systems. Courts hear and settle property rights disputes.
Each of the above four types of property rights requires a different amount of money and time to ensure that the property rights are enforced. The more restricted the use and rights of the property, the more defense it will likely need.
Lack of Property Rights
A lack of property rights can create problems and have consequences.
If there are no boundaries around property, it becomes easy to steal and exploit. A good example of this is online music.
Misuse of Scarce Resources
This problem takes into account the moral issues that surround property rights. Examples are deliberately dumping oil into the sea and littering.
Overuse of Resources
A lack of property rights can lead to an overuse of resources. Good examples of this are traffic congestion, over-fishing, hunting endangered animals, and foresting in some areas. Much of the environment cannot be protected by property rights and is therefore in danger of being overused.
Over-Development of Cities
Some economists even associate a lack of property rights with the over-development of urban areas, which causes squalor and crowding.
To fix these problems, communities and governments must change their laws. When property rights are put into place to protect resources, there are fewer problems with overuse.
Who has property rights?
Any individual who is the owner of property has property rights.
Why are property rights so controversial?
Property rights are controversial because there are often disputes about who has the right to own property and how the property can be used. Individuals often have strong opinions about property rights, especially regarding the bundle of public rights on privately-owned land.
How can I benefit from property rights?
If you are the owner of property, you can benefit from property rights by selling or managing the property for financial profit.
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