GI- Extention Of Property Rights

Question 1

Market failure

Answer 1

Externalities can arise because property rights aren’t fully allocated. An alternative to regulation is the extension of property rights. It gives water companies the right to charge companies who pollute the rivers and seas. Extending property rights is a method of internalising the externality.

Question 2

Advantages of extending property rights

Answer 2

• the gov doesn’t have access to the value of the property as it is assumed the owners of the property will have a better knowledge of its value
• there will be a direct transfer of resources from the polluters those who suffer. With regulation it isn’t those who suffer that receive the compensation

Question 3

Disadvantages of extending property rights

Answer 3

• the gov many not have the ability to extend property rights
• extending property rights within a nations border can be difficult if the link between the solution and the problem is unknown
• it can be difficult for the owner of the property to assess its value