Open-access property may exist because ownership has never been established, granted, by laws within a particular country, or because no effective controls are in place, or feasible, i.e., the cost of exclusivity outweighs the benefits.Property rights theory is an exploration of how providing stakeholders with ownership of any factors of production or goods, not just land, will increase the efficiency of an economy as the gains from providing the rights exceed the costs.
[20] A widely accepted explanation is that well-enforced property rights provide incentives for individuals to participate in economic activities, such as investment, innovation and trade, which lead to a more efficient market.
[23][24] Ronald Coase proposed that clearly defining and assigning property rights would resolve environmental problems by internalizing externalities and rely on incentives of private owners to conserve resources for the future.
Critics of this view argue that this assumes that it is possible to internalize all environmental benefits, that owners will have perfect information, that scale economies are manageable, transaction costs are bearable, and that legal frameworks operate efficiently.
[29] Sanford Grossman, Oliver Hart, and John Hardman Moore developed the property rights approach to the theory of the firm based on the paradigm of incomplete contracts.
[41] Another benefit is that the moral hazard is less likely to influence the actions of consumers, meaning they will be less likely to exploit resources unsustainably or inefficiently as property is protected.
In contrast, the modern "open access order", which consists of a democratic political system and a free- market economy, usually features widespread, secure and impersonal property rights.
[48] Universal property rights, along with impersonal economic and political competition, downplay the role of rent-seeking and instead favor innovations and productive activities in a modern economy.
[49] Incomplete property rights allow agents with valuation lower than that of the original owners of economic value to inefficiently expropriate them distorting in this way their investment and effort exertion decisions.
When instead, the state is entrusted the power to protect property, it might directly expropriate private parties if not sufficiently constrained by an efficient political process.
[50] The necessity of strong protection of property for efficiency has been however criticized by a vast legal scholarship, originated from the seminal contribution by Guido Calabresi and Douglas Melamed.
[51] Calabresi and Melamed argue that in the face of transaction costs sufficiently sizeable to prevent consensual trade, legalized private expropriation in the form of, for instance, liability rules can be welfare-increasing.
To elaborate, when property is fully protected, some agents with valuation higher than that of the original owners will be unable to legally acquire value because of sizable transaction costs.