To many people, the term “property rights” immediately brings to mind thoughts of
possessing a piece of land or a summer home. While it is true that real estate (such as land
and houses) is property, and the benefits of possession are a “right” that one typically
acquires when one buys real estate, I want you to think of “property rights” in a new and
broader way.
For purposes of this course, we can define property rights as rules governing the behavior
of people with respect to the possession, use and transfer of goods, services, or resources.
Let’s note some things that this definition does and does not say. First of all, it emphasizes
what should be, but is not always, obvious — namely that property rights deal with the
behavior of people. Property rights spell out what is and is not acceptable behavior of
people as they interact with each other in relation to property. Second, it defines property
as all inputs (resources) and outputs (goods and services) of the economic system. This is
much broader than simply real estate, or even the common notion of personal property.
Remember that for most of us, labor is the key resource that we have to contribute to the
economic system. Our definition of property rights includes labor as one type of property!
Third, notice that while property rights are defined as “rules” about behavior regarding
inputs and outputs, there is nothing in the definition that specifies the nature of these rules,
other than an indication that they are associated with the possession, use and transfer of
property. Finally, since property rights are rules about behavior, they are meaningful only
to the extent that the rules are followed. This emphasizes the importance of enforcement of
the rules.
Let’s consider the matter of the nature of the rules about possession and use of property. If
I buy a house in an urban or suburban community, it is likely that there will be a variety of
rules that restrict the ways in which I can use my property. Zoning laws will probably
prohibit me from using my house as a factory to produce fireworks. I probably will not be
allowed to use my front yard as a place to store junked washing machines, refrigerators,
etc. I may face restrictions on renting part of my house to another family. These restrictive
rules are not part of what we normally think of when we hear the term “property rights,”
