Wonny Wonny Econ-nomy

Question 1

Why Private Property?

Answer 1

Encourage efficient investment & efficient conservation

Question 2

What policy reasons do we have for economic ownership?

Question 3

Efficient Investment

Answer 3

Definition: Making an investment that costs something in the short run but yields a larger return in the long run.

Example: Spending $50 today on real resources to generate $100/year.

Ownership Incentive: Owning property instills confidence for future investment, whereas short-term ownership may lack such incentives.

Question 4

Even though it’s efficient in a Kaldor-Hicks sense, why would a short-term property owner not make investments?

Answer 4

They incur only the cost without assurance that they will see the return on their investments

Question 5

How can Tragedy of the Commons occur in CoTenancy?

Answer 5

Each has a right to the whole and is incentivized to make as much use of the resources as they can

Individual co-tenants may exploit the resources or neglect their responsibilities, leading to the degradation or depletion of the property’s value.

BUT you could also refer to this phenomenon as “agency cost” within the context of co-tenancy.

Question 6

Why does the Free Rider Problem exist in Co-tenancy?

Answer 6

While it might be KH efficient to invest, it will not benefit the individual burdened with the cost of investing

Ex: Co-tenant (TIC w/ 2 others) Should I incur a $50 investment on my own in order to make the property $100 more valuable?
No, Personal Return will only be $33

Question 7

Efficient Conservation

Answer 7

Definition: Actions that enhance property value in the short term but may diminish it in the long run.

Example: Irresponsible strip mining of land yields short-term profit but reduces long-term value.

Ownership Incentive: Long-term property owners have incentives for efficient conservation to maintain or increase property value over time.

Question 8

Why is Efficient Conservation not applicable to short-term owners?

Answer 8

If you were confident in your ownership in the short run & believed that your future property rights were at stake / uncertain

You would have an incentive to extract as much value from the land as you could. The cost is somebody else’s cost; Whereas the benefit is yours

Ex: Co-owners w/ B & C → I start up a strip mining business. I get all of the benefit & the loss is shared among 3 people.

Question 9

T/F: Co-tenancy is inherently economically inefficient

Answer 9

True. When the return on investment is split between multiple parties & the improvement costs are not, Co-tenants are incentivized to “wait it out” until another incurs the cost for them.

Question 10

Tragedy of the anti-commons

Answer 10

Inefficiency will occur if you have too many private owners whose consent is necessary for a project

(Wonnell doesn’t like this label bc it sounds like a solution & rarely is)

Ex: you want to build a highway, but to cross the country you’re crossing a lot of private parcels of land

In principle, you could say you need consent or zig-zag around their land (but this isn’t an efficient use of time/resources)

Question 11

Solution to Tragedy of the anti-commons

Answer 11

Eminent Domain

Question 12

Waste

Answer 12

Anything that’s going to negatively impact the whole without providing enough economic benefit to balance

Ex: strip mining is depleting property value, even if it benefits 1 Co-tenant

Question 13

Agency cost

Answer 13

inefficiency that can arise when an agent is not loyal to a principle

Question 14

What solution do we “hope for” to resolve Agency Cost problems in Co-tenancy

Answer 14

We hope that “family feelings” for each other will smooth over any problems (in theory, you’re less likely to screw over your mom than a stranger)

Question 15

Externalities

Answer 15

Property use can generate positive or negative externalities, impacting neighboring properties or the wider community.

+ Ex: planting flowers
- Ex: a factory emitting pollutants affecting nearby residential property values is a negative externality.

Question 16

Pareto Efficiency

Answer 16

Making persons better off without making any persons worse off

Ex: a vacant lot in a residential area is converted into a community park (with flowers.) This project enhances property values for nearby homeowners, provides recreational opportunities for residents, and beautifies the neighborhood. Additionally, the creation of the park does not impose any negative externalities, such as increased noise or traffic, on nearby residents.

Question 17

Kaldor Hicks Efficiency

Answer 17

The benefit would exceed the cost by some considerable margin

(“This person benefits so much that they could compensate this person for all their losses, and have plenty to spare.”)

Question 18

The idea of a contract in Wonnell world

Answer 18

Converting what would otherwise be a Kaldor-Hicks efficient transaction into a Pareto efficient transaction.

Weeds out transactions that are inefficient.

(if you think X is worth 1 and doing it would cost me 2, we’re both gonna walk away; cannot be made mutually beneficial)

EX: Contracts allocate risks and responsibilities between parties based on their preferences and bargaining power. For example, in a lease agreement, the landlord may bear the responsibility for major repairs, while the tenant is responsible for routine maintenance. Clear allocation of risks reduces conflicts and ensures efficient resource allocation.

Question 19

Locke Theory of Property

Answer 19

base the property right on natural rights and natural law, and then remove all the natural law limits from the property right.

Question 20

Delivery of Possession Economics: I show up to start my lease & someone’s holding over. How would the parties want to allocate the risk between the landlord and the 2nd tenant?

Answer 20

In this case, the English Rule has an edge. LL is the cheaper cost avoider & has a better idea of how to get rid of T1 than T2 would

Question 21

Economics of Rent Control

Answer 21

1. Like all price controls, produces a shortage of the product ( apartments.)
   a. Smaller at first, increasingly larger (bc of elasticity of supply & demand)
2. Creates less incentive for landlords to maintain property
   (They have this kind of surplus of tenants & it creates a weird situation where tenants hold onto the property too long.)

Question 22

“Alternative Solution” to Rent Control

Answer 22

Rent Subsidies

bad in the short term, good in the long run

Question 23

Lost Volume Landlord

Answer 23

When the LL has a lot of rental units, they don’t want to argue that a re-rental is a satisfactory coverage of their duty to mitigate.

They want all the money they can get.

Question 24

John Locke Labor Thoery

Answer 24

Because you have ownership over yourself, you own the work you preform.

SO –> you can acquire “provided that there is enough and as good for others”

Question 25

Determining “enough as good”

Answer 25

• can be value & not just physical
• when you labor on land, you satisfy the requirement because you’re producing for others

RELY ON BENEFIT ARGUMENTS & TIE INTO EFFICIENCY

Question 26

Least cost risk bearer

Answer 26

Efficiency requires assigning liability to the party who can bear the risk at least cost.

Question 27

(OH elaboration) When a contract for leasehold estates involves a risk of a costly event,

Answer 27

it is socially efficient for the “low-cost risk bearer” to agree to bear that risk, and rational bargaining will lead that to happen.

Question 28

(OH elaboration) If the parties begin to negotiate over who must suffer the losses if a risky bad event occurs, rational negotiation will lead to

Answer 28

a contract in which the low cost risk bearer ends up having responsibility for any losses if the risky bad event occurs.