Establishing Property Rights in Energy: Efficient vs. Inefficient Processes

In order for a society to use its resources efficiently, property rights must be well defined, enforced, and transferable. By now, this basic conclusion of the modern property rights literature needs little defense. Examples abound of the resource waste that occurs when actors do not bear the costs or reap the benefits of their ac- tions. The environmental concerns of the 1960s and 1970s provide excellent illustrations of the usefulness of the property rights paradigm. This paradigm has emphasized the inefficiency that en- sues when property rights are held in common. For this reason it provides valuable insights into the allocation of energy resources. Oil is often pumped from pools of very unclear title. Mineral rights and coal rights are often intermixed with rights to surface land. Geothermal resources also have common-pool characteristics. The list goes on and on, but the conclusion remains the same: Inefficien- cy results from poorly specified rights.