The Allocation and Exchange of Property Rights as a Way to Understand Comparative Economics Systems and Managerial Economics

John Garen
University of Kentucky

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Abstract: This paper discusses how economic systems can be described by the manner that property rights are allocated to individuals, to the government, or to interests groups. Property rights entail control of use of assets, claim on the net income from an asset, and transferability of the previous two. Economics systems (e.g., capitalism, socialism, cronyism) are characterized by who holds these rights, in whole or in part, and this determines the success or failure of an economy. A related analysis is applied to understanding business organization, e.g., the corporate and non-corporate form, franchising, and employee compensation methods. Each entails a (voluntary) allocation of the three aspects of property rights to different individuals and each has benefits and costs. Several examples are discussed. Competition selects the most efficient form of organization. This illustrates the importance of the private ownership of property rights, where parties may trade and divide them, for the success of businesses and the economy as a whole.

Published: July, 2019

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