Property and decentralization

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Property and decentralization
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Property

• Property is a bundle of rights telling what you
  can do with something and what other people are
  prevented to do with it
• Property ? possession
• car or house as a collateral for the loan
• intellectual property is non-rival and
  non-excludable without regulations

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Modern version of the Coase theorem

• Clear property rights are absolutely essential
  for economic activities
• if transaction costs (TC) are zero (not realistic
  assumption), then it does not matter who has
  property rights
• if TC are not zero (in reality TC are
  substantial), then it is important who has
  property rights (i.e. Grossman and Hart)

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Questions

• To what property to assign rights
• land (Mongolia vs. Europe)
• clean air
• When and who
• new minerals
• radio spectrum
• internet and file sharing
• How property rights to be secured
• property rules vs. liability rules
• Public vs. private
• what is more efficient
• under what circumstances (institutions)

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Public vs. private Historical overview

• 1800s gt issued aroused with the development of
  capitalism
• 1850 gt left wing view public property could be
  more efficient (Marx)
• 1920s-1940s Market socialist debates
• Austrians (Von Mises, Hayek) importance of
  capital market for efficient allocation of
  resources, decentralized information
  (informational argument)gt socialists economy is
  inefficient
• Neo classical (Lange, Lerner) resource
  allocation argument about Pareto optimalitygt get
  socialist managers behave as if maximizing
  problems (no info and capital market problems)

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Historical overview

• 1950s and 1960s Shumpetrians
• evolutionary economics (natural selection)
• role of business cycles in selection (creative
  destruction)
• role of innovations, new organization of
  production processes, new products
  disequilibrium
• flawed, patched-up private enterprise still
  better then socialist enterprise

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Private enterprise

• Three virtues
• administrative parsimony (poor managers have less
  resources, less influence on the economy self
  selection process)
• responsiveness (incentives, rewarding those who
  doing well)
• innovativeness of the market (diversity of ideas
  generated by market gt choose best in the process
  of evolution)
• Uncertainty, incomplete information, high
  transaction costs are inputs
• Firms are routines, only the fittest routines
  survive in the process of selection

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Private enterprise and market economy

• Paradox how rigid organizations (firms) generate
  flexible economic system
• Solution natural selection throws away bad firms
  (creative destruction). Shumpeters view on
  business cycles as a cure for the economy
• Question what institutional structure is the
  best for the natural selection process?

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Public vs. private?

• Very much conditional on the institutions
• economic theories (1930s resource allocation,
  now transaction costs)
• surrounding economic events
• empirical e.g. GB privatization
• failure of the Soviet socialism influences views
  on public property
• Size and corporate governance
• small, closely held firm (ownermanager)gt
  private is better
• large firms
• separation of ownership from control
• direct government regulation
• gt no conclusive evidence

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Politicians and firms

• Beginning of transition in the Soviet Union
• need for privatization
• quickly or slowly?
• which firms to privatize first?
• was it for institutions to be constructed first
  or privatize immediately and create institutions
  later?
• Washington consensus simple strategy of reforms
  that fits all countries
• stabilization
• price liberalization
• privatizations
• institutions