How do improved property rights encourage economic development??

Analyze the various ways in which property rights encourage economic development and make at least one recommendation for improving current laws. Explain your rationale.

There are four main ways in which property rights may encourage economic activity:

·         Property rights can be beneficial in encouraging development of new businesses. This is basically because the expropriation risk is minimized when property rights are well defined. When the property rights are insecure, it is possible that investors may not be able to reap the benefits of their investment and efforts.

·         When property rights are ill defined, additional costs have to be borne by the owners to protect their respective properties. These costs are unproductive from an economic point of view and are a waste of resources for the society.

·         Also, in order that the industry operates efficiently, it is important that the assets in the economy are used by the most productive individual or organization. However, if the property rights are not secure, it could lead to hindrance in the efficient  working of the economy and gains in trade could be made by improving property rights which would enable asset mobility in the economy.

·          Moreover, many financial market transactions require collateral. For this, property rights must be well defined. Thus, improving property rights may lead to benefits and productivity gains by increasing financial market transactions, improved credit facilities and a denser banking network.

Even though, solutions to property rights need to be country-specific to some extent, there is one recommendation that all would agree to. In most cases, the government must increase its investment in basic legal institutions. Also, the priority should be to focus on property registration institutions. Another important issue is implementation of the laws. In many countries sufficient laws exist, but there is no penalty on breaking the laws. So, attention should be paid so that the laws are not only made but also implemented. Moreover, many a times, lobbying affects the decisions of policy makers. If improving property laws negatively affects the bureaucrats, they might want to influence the government to not improve these laws.  Steps should be taken to ensure that this does not happen.