Under certain institutional arrangements, the establishment of private rights to resources can leave a society no better off than when rights were held in common. In other words, the “tragedy of the commons” may be no worse than the rent dissipation that can result in the process of private property establishment.#
When the methods of defining and enforcing private rights are devised through residual claimant action there is a greater incentive to conserve on resources used in the process than when that process is imposed exogenously by non-claimants.#
As the potential rents from resources rise, as the value of the resource increases, more efforts will be devoted to definition and enforcement activity. The worth of perfectly defined and enforced rights is represented by the net present value of the rents and individuals would be willing to spend up to that amount to obtain these rights. If the rents can be obtained for less than this amount, net rents will be positive and society’s output will be greater.#
While private property rights are a necessary condition for efficient market allocation, they are not a sufficient condition. The definition and enforcement process can simply shift the inefficient allocation of resources from the resource commons to the property rights commons.#