property rights and market failure

Question 1

Do natural resources have any private ownership?

Answer 1

no

Question 2

Since there’s no private ownership, what happens?

Answer 2

Therefore, its every producers self interest to over exploit the natural resources.

Question 3

what could be a example of this?

Answer 3

A private producer owning a part of the forest, they want to cut down trees to make paper.

Question 4

How will the private producer use trees to make paper?

Answer 4

• This owner has a incentive to extract these resources but not cut down too many trees
• the reason for this it that the impact will be towards the owner so they are suffering in the end.
• there’s no negative externalities to others except the owner.

Question 5

If the owners are taking precautions to not over-use these resources, what will happen as a result?

Answer 5

if these rules are enforced by the owner then the socially optimum level will be achieved.

Question 6

what are the disadvantages?

Answer 6

• can property rights be efficiently distributed like you can’t really set any rights over air and the sea.
• enforcement can be very expensive
• equity- well whoever gets the rights end up dominating

e.g the lake- if the local villagers use it for leisure and drinking water then the chemical firms may need to pay them to dump waste so the villagers are dominating and vice-versa the villagers may need to pay chemical firms so that they have access to drinking water however that might end up being too expensive.