Why Property?

This is a very long topic, probably in need of a book. But I want to sketch out the basic intuition here. And I’ll do it with the famously infallible analogy.

Suppose there is a village in the middle of the Sahara. This village sits next to an oasis. As you can imagine, the oasis controls everyone’s life. If people drink too much water from the oasis, it will dry up before the rainy season can replenish it, killing everyone in the village. Likewise, if people have too many kids, then the population of the village will expand too much, and too many people will drink from the oasis killing everyone in the village. If people don’t drink enough from the oasis, people won’t have the hydration to get their work done, thus people won’t have any food, killing everyone in the village. Needless to say, social expectations with regards to the oasis are critical to the life and death of the village.

Furthermore, let’s assume the people in this village recognize this oasis as a piece of property to one man, with all of the rights that follow. It may seem as though this is a poor decision on the part of the village, but don’t worry, this man is perfectly benevolent and omniscient. He is guaranteed to use this oasis in the most socially beneficial manner possible.

I think the everyone’s gut reaction is to say “well, if this guy is perfectly benevolent, then he will let anyone use the oasis at any time they wish”. Another way of putting that is, the man will allow people to use the oasis charging them a price of zero. And it’s important to note that this is effectively equivalent to no one owning the oasis, as he’s not excluding anyone from access.

Unfortunately this brings into play what economists call the “tragedy of the commons”. As soon as the man announces that anyone can use the oasis at any time, free of charge, as a villager I know that everyone else in the village can run and grab as much water as they can, draining the oasis. Thus, if I don’t grab any water now, I’m most definitely going to die of thirst. Whereas, if I can grab enough water before everyone else can get it, I have at least some chance of living a good deal longer, maybe long enough to make it across the desert, or last until the rainy season. Everyone makes this mental calculation, everyone runs to the oasis, the oasis drys up, everyone dies.

Thus, even though the man is perfectly benevolent, it seems reasonable to me that he wouldn’t charge a price of zero for oasis access, since that would disincentivize people from conserving, potentially killing the village. So instead he must charge a price greater than zero, but less than infinity.

So the question becomes, what price does he charge? And I think the answer is, he charges enough to incentivize people to conserve enough water so that the oasis will last until the rainy season. Maybe he even charges more than that in case there’s a drought or something. Needless to say, he charges enough to conserve enough water to allow the village to survive into the foreseeable future, accounting for various risks.

Switching gears for a bit, now let’s look at a similar scenario, except the man isn’t omniscient or benevolent, he’s just self-interested. We can even assume he’s cartoonishly self-interested. If given the choice between saving you from drowning, and receiving a penny, he would choose the penny, regardless of his swimming skills or need for the penny.

So the question is: what price does he charge? He doesn’t charge zero, not because he doesn’t want the village to die, but because he can’t make any money if the village is dead. Likewise, he doesn’t charge infinity, for the same reason. Instead, he charges the specific amount of money that would optimize his revenue. Which is probably more than the benevolent man, but just low enough such that everyone in the village survives, and can continue to pay him into the future.

That seems better than the case where everyone was allowed access to the oasis, but it still doesn’t seem great. I don’t know about you, but it would seem nice to live in the world where the perfectly benevolent man was the owner of the oasis, instead of this self-interested lout. However, given the glut of perfectly benevolent men in the world, let’s consider a third example. This time, instead of one self-interested man, there’s two. Each of whom own a separate oasis. What price do each of these men charge for access to their designated oasis?

In this scenario, each of the men have an incentive to undercut the other’s price in order to attract people to use his oasis, which gets him a villager to pay him who otherwise would use his competitor’s oasis (thus getting him more money). So, even if the price starts at the price one self-interested man would charge, through this process of undercutting, eventually both men would arrive at the same price that the benevolent man is charging. As soon as one of the other men charge’s anything more than that, all of his customers will go to his competitor. However, he can’t charge anything less than that, because the oasis will dry up too quickly.

It’s tempting to say that they would collude, and charge, not the benevolent man’s price, but the same price as before. However, in order for such a collusion to work, they each would have to have certain knowledge about the other’s intentions. If one couldn’t trust the other to keep the colluded price, then he himself might lose his customers if the other cheats him. Furthermore, if one defects against the other before the other can defect against him, he gets all of the customers. Both men make this mental calculation, both men agree to the fixed price, and both turn around and undercut the fixed price. Logically speaking, it seems as though such a collusion is unstable.

Thus, we have five potential owners of the oasis:

1. A perfectly benevolent man would charge enough to incentivize conservation.

2. Two competitive cartoonishly self-interested men would also charge enough to incentivize conservation.

3. A single cartoonishly self-interested man would charge as much as people could pay, but not enough to kill them.

4. A perfectly malevolent man wouldn’t allow anyone to use the oasis.

5. And lastly, a perfectly malevolent man with a twisted sense of humor would allow anyone to use the oasis free of charge.

Since I suspect almost any randomly chosen person is somewhere between perfectly benevolent and cartoonishly selfish, and that almost all resources in our society are substitutable in some fashion (either in what they are, how they’re acquired, or who owns them), property rights seem to be a key element in managing the conservation of scarce resources. Even monopolistic interaction, while not perfect, can be better (though maybe not always is) then freely allowing anyone to use the resource.

This is obviously a bit of a contrived analogy. But I do think most resources in the world mimic this situation fairly closely. And most deviations from the analogy (such as the ability to discriminate the pricing between the villagers) won’t change the outcome. Which is why a materialistic (in the sense that we can interact with our world, use tools, etc) social species such as ours developed property rights in the first place.