Property Rights: The Key to Economic Development

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Prosperity and property rights are inextricablylinked. The importance of having well-definedand strongly protected property rights isnow widely recognized among economists andpolicymakers. A private property system givesindividuals the exclusive right to use theirresources as they see fit. That dominion overwhat is theirs leads property users to take fullaccount of all the benefits and costs of employingthose resources in a particular manner. Theprocess of weighing costs and benefits produceswhat economists call efficient outcomes. Thattranslates into higher standards of living for all.

It is only in the last few decades, however, thateconomists have accepted the importance ofproperty rights. Throughout much of the historyof modern economics, the subject was givenshort shrift. Even stalwart supporters of the marketeconomy glossed over the subject. Not surprisingly,much bad development policy resultedfrom that neglect. Even if policymakers in developedcountries and international institutionsnow recognize the critical role played by a systemof private property in economic development,they are limited in what they can do to helpdeveloping countries evolve such a system.Policymakers can, however, avoid recommendingpolicies that undermine private property.

Gerald P. O’Driscoll Jr. and W. Lee Hoskins

Gerald P. O'Driscoll Jr. is senior fellow at the Cato Institute and Lee Hoskins is senior fellow at the Pacific Research Institute.