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Private property
Private owners have an incentive to lower the chance that their property will cause damage to the property of others. Private ownership links responsibility with the right of control. Private owners can be held accountable for damage done to others through the misuse of their property. A car owner has a right to drive his car, but will be held accountable if the brakes aren’t maintained and the car damages someone else’s property. Similarly, a chemical company has control over its products, but, exactly for that reason, it is legally liable for damages if it mishandles the chemicals. Courts of law recognize and enforce the authority granted by ownership, but they also enforce the responsibility that goes with that authority. Because private-property owners can be held accountable for damages they cause, they have an incentive to use their property responsibly and take steps to reduce the likelihood of harm to others. A property owner, for example, has an incentive to cut down a dying tree before it falls into a neighbor’s house and to leash or restrain his or her dog if it’s likely to bite others.
Private owners
Private owners have an incentive to conserve for the future-particularly if the property is expected to increase in value. People have a much stronger incentive to conserve privately owned property than they do commonly owned property. For example, when Steven was in college, the general rule among his roommates was that any food or drink in the house was common property-open game for the hungry or thirsty mouth of anyone who stumbled across it. There was never a reason for Steven to conserve food or drinks in the house because it would be quickly consumed by a roommate coming in later that night. When Steven first started living alone, he noticed a dramatic change in his behavior. When he ordered a pizza, he would save some for the next day’s lunch rather than eating it all that night. Steven began counting his drinks before he had one to make sure there were enough left for the next day. When Steven was the sole owner, he began delaying his current consumption to conserve for the future because he was the one, not his roommates, who reaped the benefit from his conservation.
Similarly, when more than one individual has the right to drill oil from an underground pool of oil, each has an incentive to extract as much as possible, as quickly as possible. Any oil conserved for the future will probably be taken by someone else. In contrast, when only one owner has the right to drill, the oil will be extracted more slowly. The same applies to the common-property problems involved in overfishing of the sea compared with fisheries that use privately owned ponds. ’’
Someone who owns land, a house, or a factory, has a strong incentive to bear costs now, if necessary, to preserve the asset’s value for the future. The owner’s wealth is tied up in the value of the property, which reflects nothing more than the net benefits that will be available to a future owner. Thus, the wealth of private owners is dependent on their willingness and ability to look ahead, maintain, and conserve those things that will be more highly valued in the future. This is why private ownership is particularly important for the optimal conservation of natural resources.
Tradable and Non-Tradable Goods
There is a further point, which is that clear differentiation has to be made between tradable and non-tradable goods. PPP may not hold for non-tradable goods such as services. The dry world of economics is frequently best explained through example and anecdote. Thus, a haircut might be cheaper in New York than London (most things are and this is not one of the exceptions), but few people would be prepared to fly to New York from London just to get that cheaper haircut. This is not just because to do so you would have to pay for a London–New York return flight, which would negate any haircut-related gains you would make. Even supposing the air ticket was free would you really fly 8 hours for a cheaper haircut? The PPP concept assumes there are no barriers to the arbitraging of price differentials, yet with non-tradable goods this may not be the case. Granted, there may always be some wayward individuals who would actually take that flight!
PPP or the law of one price holds better of necessity for homogeneous commodities that are traded internationally, with arbitrage opportunities being quickly eliminated. However, even here, care is needed. While PPP may hold generally, prices even of homogeneous commodities may vary widely between countries depending on local supply/demand dynamics. Indeed, the very fact that the price of a McDonalds Big Mac, which is a homogeneous commodity, can vary between countries for even a short period of time proves this point.