What Are Property Rights and Why Do They Matter?

What Are Property Rights?

Property rights give the owner or right holder the ability to do with the property what they choose. That includes holding on to it, selling or renting it out for profit, or transferring it to another party. Property rights define the theoretical and legal ownership of resources and how they can be used. These resources can be both tangible or intangible and they can be owned by individuals, businesses, and governments.

Individuals in many countries, including the United States, exercise private property rights to accumulate, hold, delegate, rent, or sell their property. Property rights in economics form the basis for all market exchanges. The allocation of property rights in a society affects the efficiency of resource use.

Understanding Property Rights

Property is secured by laws that are clearly defined and enforced by governments. These laws define ownership and any associated benefits that come with holding the property. The term "property" is very expansive and the legal protections for certain kinds of property can vary between jurisdictions.

Property is generally owned by individuals or by small groups of people. The rights of property ownership can be extended by using patents and copyrights to protect:

• Physical resources such as houses, cars, books, and cellphones
• Non-human creatures like dogs, cats, horses, or birds
• Intellectual property such as inventions, ideas, or words

Other types of property such as communal or government property are legally owned by well-defined groups. These are typically deemed to be public property. Ownership is enforced by individuals in positions of political or cultural power.

Acquiring Rights to a Property

Individuals in a private property rights regime acquire and transfer property in mutually agreed-upon transfers or through homesteading. Mutual transfers can include rents, sales, voluntary sharing, inheritances, gambling, and charity.

An individual may acquire a previously unowned resource in homesteading by mixing their labor with the resource over some time. Examples of homesteading acts include plowing a field, carving stones, or domesticating a wild animal.

Ownership and use of resources are allocated by force, normally by the government, in areas where property rights don't exist. These resources are distributed based on political ends rather than economic ones. Governments determine who may interact with, who can be excluded from, or who may benefit from the use of the property.

Private Property Rights

Private property rights are one of the pillars of capitalist economies as well as many legal systems and moral philosophies. Individuals need the ability to exclude others from the uses and benefits of their property within a private property rights regime.

All privately owned resources are rivalrous. Only a single user may possess the title and legal claim to the property. Private property owners also have the exclusive right to use and benefit from the services or products. Private property owners may exchange the resource voluntarily,

Special Considerations

Every market price in a voluntary, capitalist society originates through transfers of private property. Each transaction takes place between one property owner and someone who's interested in acquiring the property. The value at which the property exchanges depends on how valuable it is to each party.

Suppose an investor purchases $1,000 in shares of stock in Apple. They're able to do so because Apple values that $1,000 more than it values the stock. The investor has the opposite preference and values ownership of Apple stock more than $1,000.

The Bottom Line

Property rights are a form of legal ownership that allows the owner of a property to do anything they like with it. They can sell it, rent it out, or give it away. This doesn’t apply just to real estate but to anything you own outright as well, such as your furniture, automobile, or financial accounts.

Ownership can become murkier and include additional clauses if you have a co-owner or co-tenant on a deed. Always check into your property rights to any asset before you dispose of it or otherwise do anything to affect its value.