Toward a Theory of State-owned Property Rights

Abraham Bell (University of San Diego)
Horacio Spector (Universidad Torcuato Di Tella)

Abstract: Most state ownership of property is analogous to private property but for the identity of the owner. Using Demsetz’s classic article on the evolution of private property as a model, this Essay makes preliminary observations about the evolution and relative merits of state ownership. Analogizing the state to a firm, we note that state-owned property is potentially advantageous where partial internalization can prevent overuse or wasteful use of the asset, while the transaction costs involved in state management of the resource are relatively low. However, where state-owned property is not used for the provision of state services, it is likely that state ownership involves unnecessary agency costs. Additionally, state-owned property is vulnerable to the under-utilization and suboptimal use of resources characteristic of anticommons. Political management of state owned resources potentially permits multiple political actors to block efficient uses of the property, while raising excessive transaction costs for potential users. Managers of state-owned property may also underutilize the state’s rights of exclusion, leading to overuse characteristic of commons property. Finally, we show that state ownership is likely to be chosen over the alternatives when it creates localized gains that exceed the losses experienced by the relevant interest groups. In the benign case, state-owned property offers a lower-transaction cost means of managing exclusionary rights, due to, for example, economies of scale. In the less benign cases, state-ownership of property brings a net social loss, but is attractive because an interest group is able to capture a profitable use of the property more cheaply than it would in the private sector.


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