Property Rights

Definition

The term property rights refers to the laws governing the use, control, transfer, and economic benefit derived from property.  Strong government enforcement of property rights is considered a key determinant of economic success in a given geography, since land is oftentimes acquired to generate additional wealth.

Explanation

Individuals as well as companies oftentimes acquire the rights to property to exploit its economic value.  They will do this if they can be assured their rights to the property will be protected.  Without such protections, there would be little incentive for anyone to have or hold property.

Generally, these rights fall into four categories, and include the ability to:

  • Use the property
  • Transfer, or sell it
  • Earn income from its use
  • Maintain ownership

Laws created by governments will usually outline how individuals can use, transfer, benefit from, and maintain ownership.  However, there are costs associated with delineating, monitoring, and administering these rights.

Ownership rights can be categorized as follows:

  • Open Access:  not owned or managed by anyone, and access to such property is not controlled.
  • Government Property:  owned by everyone, management and access is controlled by the government.
  • Common Property:  owned by a specific group of individuals, management and access is jointly controlled by the owners.
  • Private Property:  ownership, management and access are controlled by the property owner.

Property rights may also give a business the right to use, produce, or sell something.  If this right can be separated from land, it can be capitalized separately too.  For example, the ownership of land might provide a timber company with the right to harvest the trees on the land.  While land is never depreciated, the value of the timber can be held as a separate asset on the company's balance sheet, and amortized as the timber is harvested.

Related Terms

property, plant, equipment, intangible assets