Saturday, January 28, 2006

Property rights, neglected

(Before you get bored, read the last two paragraphs first)

One thing that's so challenging everytime we start talking about public economics (i.e. economics that involves you, me, them, and the government simultaneously -- ahem, looks like everything is public economics, no?) is the issue of property rights. Sadly, it is almost always taken as a cursory note. It might even be just a cameo in econ classes. Despite the fact that the issue of property rights is a key pillar in economics.

Here's an example.

Imagine you buy a gold in whatever form. You keep it at home as a "store of value". Due to high uncertainty in other form of investment (money, stocks, bonds, etc), you decide to keep it and sell it when "price is damn good". Question: are you committing a crime? Of course not (I know you're raising your eyebrow).

But now, try this thought experiment. Change the word "gold" into "rice". Does our conclusion still hold?

Apparently, not to one of my students. She said that when you stored rice and waited until the price was high before you sold it, you're "immoral". I asked her what's the difference with gold. She quickly responded: "You don't eat gold, you eat rice". So the nature of property depends on whether or not you "eat" it, eh?

That's a total neglect of the concept of "property right". And it's not unique to the student above. The same way of thinking is pervasive even in the House of Representatives and in the government. I heard, some lawmakers start thinking of punishing "rice speculators" -- those who buy rice in bulk, keep it, and sell when the price is high.

Property right, in plain words, is the right to do anything the beholder wants with regards to the property. When I bought this laptop, what I actually paid was the right to do anything I want to it. As per the transaction, the right was transferred from the IBM store to me. Next thing I knew, I could use this laptop to blog, to write, to calculate, you name it. But don't forget, I could also use it for other purposes I want. For example, when I got threatened by some jerk on the street, I could throw this laptop on his face, as a defense. I could even ... burn it, if I want. And IBM store has no right to complain. Neither does the parliament member, nor the government.

So, if you want to punish "rice speculators", you've got to be fair. Punish gold "speculators", laptop "speculators", car "speculators", et cetera.

Note however, two caveats:

One, when the government acts as "rice speculators", the above qualification might not hold. Why? Because it speculates using our money, not their own. When Bulog buys rice, some of the money they use come from our tax. Meaning, the people own part of the property right. The government cq Bulog is therefore subject to the people's consent.

Two, be very clear on the difference between the rice "speculation" story above and the practice of illegal mixing of fuel and kerosene ("oplosan"). When I buy lots of fuel, I own the property right of it. When I buy lots of kerosene, same story applies as well. I have all the right to do anything on those two "properties", including mixing them up. But, when I sell the mixed substance to the public as if it is fuel (not mixed with kerosene) at the fuel price (be it market or administered), I am committing a crime. I have to be punished for that. Because I lie to buyers -- if you know that my fuel contains kerosene, yet I sell it at the same price with un-kerosene-d fuel, there's no reason for you to buy it from me. (The story will be more complicated when I sell the mixed thing at a price lower than fuel's price but higher than kerosene's price, then I transact with you voluntarily and with perfect information; but let's save this for other posting; for now, let's think before calling it a crime).

Having said all that, let me go back to your favourite issue: Playboy magazine. I deliberately offered the "anti" camp an economic solution, namely: buy the magazine, and burn it. Now you see what I meant. When you buy the magazine, you have all the right to do anything on it. So it's perfectly legal for you to ... burn it. But you can't burn somebody else's magazine -- he (or she) has the right to keep it; he pays for it. (Note: the argument here does not hold for the case of, for example, bibles. What constitutes "property" in the case of bible is not the book in its physical form. It's the ideas that have become publicly owned. It's the religion. And the owner of a religion is of course the believer of the religion. The only private part of the bible is the production process of printing it, and the right to keep it at home. The content, on the other hand, is a public good. Burning a bible, therefore, means an offense to the "property owners": the believers).

(Quizz: Ape and Dewa (see comments in the foregoing posting) suggest to the anti camp not to buy Playboy magazine. I suggest otherwise. Why?)


  1. Playboy as a magazine is private property, ..but the values Playboy (doesnot) represent (Playboy does associate with erotica & nudity), who has the property right for that?

    if they have to pay for the property right when the magazine comes out, they would go bankcrupt... because a lot of people won't reveal their preference and prefer to be a free-rider (including myself)... and let other people buy the magazine and burn it (and profit on other people's willingness-to-pay) ..

    PS: how did i do? ;)

  2. Three things, Za. First, free riding is another subtle issue. You can "free ride" in my (private) car, if I allow you to do that. Note the operative word "allow": are you completely "free"? No. Because it depends on my allowing you to ride with me or not. The property right of the car belongs to me. I can do anything to it, including giving you a ride free of charge. Now, change the "car" to "Playboy magazine" and "riding" with "reading". The story holds.
    Second, there is indeed some copyright matter in a magazine. You write an article and send it to Playboy. The magazine publishes it and transfer some fee to your bank account. Meaning, you're giving the right to Playboy to do "anything" to it (reprint, copy, etc -- but not without your name; this is a condition set forth by some international convention on intellectual copyright). Now, when I buy the Playboy with your article in it, I own the magazine, and I can burn it. But if I plagiarize your article, that's a different issue. It's a violation to the intellectual copyright, and I can be punished for that -- not for burning the magazine.
    Third, you're concerned that "if they have to pay for the property right... they would go bancrupt" is well-taken. But again, it's up to the owner whoever he or she is, whether or not lend the magazine to you or others. But the lenders have no right to ... burn it (well except if the owner also allows you to do that). When I suggest an anti-Playboy person to buy that magazine I actually offer him a solution such that he can do anything on the magazine that now belongs to him. He can burn it right away, so his children don't read it, for example. But he should't violate your right, another person, who may buy it for another purpose -- to read it. Finally, he's not violating the Playboy magazine's "property right", because when he buys it, the right is transferred to him. Likewise, when he burns it, the Playboy has no right to complain -- it's "paid" not to.

  3. Law and policy tend to value life over property. When drawing comparisons of protecting property between gold and rice, where rice is essential to sustaining life, public policy will move to the consumer and not the hoarder.

    Furthermore, in regards to the Playboy controversy, buying the magazine only furthers the interests of the publishers--but if this is the common modus operandi then it discourages advertisers and then may sink the publisher if this greater market can react efficiently. Interesting idea.

  4. You were talking about property right, an economic term. Gold is commodity, so is rice. How the Playboy magazine got mixed in with the subject? Magazine represents something along the line of free speech, however, the Bible and Al Qur'an are holly books. I doubt very much that people who regularly read Bible or Holly Qur'an have a need to look at the Playboy magazine, let alone buying it.

  5. Anonymous, I stated explicitly there that the argument laid out might not hold for cases like bibles. I wrote that disclaimer to anticipate reaction like this: "OK, what about bibles? Who own the property rights? We might spend money to buy the print Does it mean we buy the rights? Right to what?".

  6. How about caricature of the Prophet Muhammad published on a Danish Newspaper and then followed by other newspaper across europe, is that the same issue here?

    according to your arguments, should we ask people in Indonesia, Turki, Arab Nations and others to buy all that papers and then burn them instead of going on the street, showing their anger by burning Danish Flag or a boycoutting its brands of butter and cookies?

    or maybe we missed something that, not only "property rights" are matter?????

  7. OQ, don't be too quick on generalizing an issue. And that's again why I put such a qualification on the second-to-last paragraph. As I said, a religion belongs to its followers. This includes the right not to be insulted. What the Danish newspaper did is an insult to the property owner of a religion, Islam. The newspaper has to apologize -- as they did already. Do you see the difference with the case of Playboy magazine in Indonesia? By having nude pictures of some exhibisionists, the only way to "punish" it is to not buying it (as suggested by Ape) or to buying-and-burning it. But, note, once it makes a caricature of the Prophet or other form of insult, it trespasses an area of property belongs to Muslims. We know the rest of the story.

    But, before you generalize this again to other areas, I should mention, religion is a unique case. You can't apply the argument to, for example science. Suppose you don't believe in Darwin's evolution theory. In other words, you're not a follower of Darwinian approach. You're free to make a caricature of Darwin, whenever and wherever you want.

    But not to a religion.

  8. Remember Heinrich Heine famous quote, "“Wherever they burn books they will also, in the end, burn human beings”.

    Besides, it may actually helps the magazine in terms of sales and free publicity. It's the same case with flag burning. Someone has to supply the flags you know.

    Oq and Aco, some economists see religion as a club good, and others see it as a symbolic public goods. Private good is probably not the best way to define it.

    And by the way, the debate on claims of exclusivity or ownership of a religion and so forth have been parts of a long and rich discourse elsewhere (e.g. Utan Kayu ). It is certainly not my expertise and probably not the cafe's comparative advantage at this time(I might be wrong) although I do hope some of you who are really interested can learn enough about economics of it and see whether we can get any mileage out of it.