Property and Economic Prosperity - Explained
How Does Ownership of Property Related to Productivity?
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How are property rights linked to economic activity?
The ability to possess property for ones benefit and to exclude others is understood as a desire or want of many individuals. Research has shown that individuals will expend effort to acquire resources that meet a need or want. Providing a system whereby individuals may acquire property incentivizes those individuals to work toward that end. That is, people will expend effort to acquire property if they have the knowledge that they will be able to retain the property for their personal use and without the threat of forfeiting the property to others. They will undertake work that they were not otherwise willing to undertake in the absence of acquiring new property. Some individuals are willing to work longer and harder incentivized by the amount of property they are able to acquire as a result of their efforts. This tendency often results in greater efficiency in effort and overall economic productivity. Increased productivity of individuals is linked to increases in total economic output in an economy.
Next Article: Limitations on Property and Ownership Rights Back to: PROPERTY LAW
Do you believe that ownership rights in property have a positive or negative effect on individual productivity? Why or why not? If yes, are there any negative effects of the incentives created by property rights? Are there any disincentives associated with property rights?
Jonathan works in a 9 to 5 job. His performance objectives and career path is very clear. He is promoted based upon meeting minimum performance standards over a specified period of time. If he meets these standards each year, he will gradually receive higher benefits and increasing responsibility. If he fails to meet those standards, he will likely remain in his current position. While superior performance may bring praise from his colleagues and superiors, it will not increase the rate at which he is promoted or bring any additional, tangible reward. In this system, how is property used (or not used) as an incentive to induce greater economic output?
- Property can be used as an incentive if persons interested in the property are made to understand that they will have ownership rights in the property to not only use but also retain the same without the threat of having someone else take possession of it. In a job environment, an incentive is an object, item of value or desired action or event that spurs and employee to do more of whatever was encouraged by the employer through the chosen incentive. In the example from the question, property is used as an incentive by encouraging employees to work hard and achieve some standards so as to be promoted and have a bonus. The promise of a promotion and a bonus works as an incentive to encourage employees such as Jonathan to work hard and deliver.
What is Capital Formation?
Property ownership rights allow individuals to possess and demonstrate the results of their own efforts. Individuals are then able to employ that property toward creating additional property. That is, individuals can use their acquired property (or provide it to others) with the intention of generating or acquiring ownership rights in more property. In furtherance of capital formation, the nature of property allows ownership rights in any resource to be divided among individuals. As such, individuals can employ their resources collectively in the creation or acquisition of new property.
- Example: Abes ownership of property allows him employ the services of Bob in exchange for providing Bob with a form of property. Bobs effort generates additional property for Abe, which Abe can use for the creation of additional property.
Can you think of any other examples of how ownership rights allow individuals to accumulate or grow economic value or wealth?
Jane is renting an apartment in New York for $2,000 per month. She decides to purchase a home because it will be financially advantageous. She buys a very small apartment for $350,000. Her mortgage each month is $1,650 and her property taxes are $600. Of her mortgage payment, $1000 goes to principal, while $650 goes to interest. In this scenario, how does owning property allow for capital formation where renting an apartment does not?
- Capital formation is a term used to describe the net capital accumulation during an accounting period. Capital formation ensures that a person enjoys ownership rights to use the property to create and acquire other property. For instance, a person can use their property to gain monetary rewards. In the example from the practice question, owning a home as opposed to renting an apartment, provides Jane the opportunity to rent out a room and use the money she receives as either an investment for the purposes of creating or acquiring other properties or use the same to pay off the mortgage payments. In the end, owning a home will not only give her ownership rights that she could not enjoy willing renting an apartment but it does create the opportunity for more capital formation.
- Property Law (Intro)
- Tangible and Intangible property?
- Knowledge Capital
- Calculated Intangible Value
- Real and Personal Property?
- Littoral Land
- Readily Removable Fixtures
- What is ownership?
- Role of Government in ownership of property?
- Allodial System
- Role of property rights in economic activity?
- What are the limitations on property ownership rights?
- What is nuisance?
- Homeowners Association (HOA)
- Rule of First Possession?
- Lost or Mislaid Items?
- Adverse Possession?
- Establishing and transferring ownership in real property?
- Absolute Title
- Warranty Deed
- Register of Deeds
- What is a fee simple interest in real property?
- Absolute Interest
- Restrictive Covenant
- What is a life estate in real property?
- What is a leasehold estate in real property?
- What are common types of co-ownership relationships in real property?
- Owning Real Estate Personally vs as LLC
- What if Co-Owners of Real Estate Want Out
- Community Property and Separate Marital Property?
- What is an easement interest in real property?
- What is a license of real or personal property?
- Bundle of Rights
- Absorption Rate
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- National Housing Act
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- Acquisition, Development, and Construction Loan (ADC)
- Flipping (Real Property)
- Buy, Strip, and Flip
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- Building Residual Method
- Accessory Dwelling Unit
- Property Management
- Cost-Plus Contract
- Real Estate Investment Fund
- Listing Agreement
- Property Lawyers
- Multiple Listing Service
- Home Equity
- Register of Deeds
- Title Search
- Opinion of Title
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- Abstract of Title
- Chain of Title
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- Earnest Money
- Private Mortgage Insurance
- Closing (Property)
- Settlement Statement
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- HUD-1 Form
- Closing Statement
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- Buying Real Estate as an LLC
- What is a mortgage?
- Judicial Foreclosure
- Lis Pendens
- Short Sale
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- Tax Deed
- Tenancy at Will
- Closed End Lease Definition
One Percent Rule
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- Hell or High Water Contract
- Habendum Clause
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- Emblements Definition
- What is a bailment?
- Unilateral-benefit and mutual benefit bailments?