Research the Property Rights Theory of the Firm (Essay Sample)

KENYATTA UNIVERSITY
SCHOOL ECONOMICS
DEPARTMENT APPLIED ECONOMICS
UNIT CODE EAE 408
UNIT NAME ECONOMICS OF INDUSTRY
REG. NO K24/2463/2012
NAME NDUTA M WANJIRU
TASK ASSIGNMENT
LEC Dr. ISAAC KINUTHIA
DATE 15TH OCTOBER 2015
Property rights are theoretical constructs determining how a resource is used and owned. They are laws created by governments in regard to how individuals can control, benefit from and transfer property.
The standard property rights theory of the firm assumes that prior to investing in human capital, team members meet and negotiate asset ownership.
The property rights theory assumes that the ownership of non human assets explains firms’ boundaries; a firm consists of those assets it owns, over which it has control.
This theory does not distinguish between ownership and control, but defines ownership as the capacity to exercise control. It states that control is achieved through the ownership of physical assets.
The theory assumes that ownership gives the owner the rights to dispose of physical assets that the owner has not given away, or that the government has not taken by force.
Weaknesses
It fails to perceive that ownership does not necessarily give the legal control to dispose property , as property law tells us that ownership consists of a bundle of rights.
It focuses on physical assets which cannot operate independently of expertise/ skills.
It argues that control over physical assets can lead to control of human assets that are embedded in the organization capital.
By protecting property rights, the Government of Kenya will achieve the Vision 2030 objective of enhancing investments in the following ways;
Certain property rights arrangements can reduce transaction costs in exchange and production and encourage (sunk costs) investments to promote overall economic growth.
Individuals will create new forms of property to generate wealth because they are assured that their rights to their property will protect them against unjust and/ or unlawful actions by other parties
Property rights increase competition, which encourages investment. This is because property rights convey the right to benefit or harm oneself or others. Harming a competitor by producing superior products may be permitted.
Investment is encouraged if improved transfer rights make it easier for individuals to rent or sell their p...