Chapter 1: Microeconomics: A Way of Thinking about Business (30 points) A. Prope

Question

Chapter 1: Microeconomics: A Way of Thinking about Business (30 points) A. Property Rights and Incentives (15) 1. Many people blame the "free-market system" for a variety of "environmental" problems, including pollution and endangered species. Explain how the absence of well-defined and enforced private property rights (the tragedy of the commons) is actually the true culprit. 2. How is it possible that the presence of well-defined and enforced private property rights in goods might actually cause problems rather than solving them (the tragedy of the anticommons)? Contrast parts A and B in terms of the kinds of goods (public versus private) that are relevant in each case?

Explanation / Answer

The lack of well defined and enforced rights mean everyone can use environmental goods like commons without paying for it. He is not sued by property owners since there are no clearly defined property rights. Led by self interest people destroy commons. Had there be well defined rights people would have been made to pay for damages and thus they will have avoided damaging such assets. Also the property right holder will have taken initiatives like fencing commons which would prevent demage

2 it is possible because multiple property right holders have rights over same resource,. They prevent other from utilising the product and thus output is not socially optimal

Tragedy of common occurs in case of public goods and tragedy of anti commons in case of private goods

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