output, are, of course, different questions. The point here is simply that it is possible for the optimal outcome to be achieved if a supervisor has information about individuals work effort and possessory rights in output Comments. (a) The conclusions just discussed about property rights and incentives to work carry over to more general and realistic settings(as will the conclusions about the other advantages of property rights to be discussed). In particular, in an economy with many kinds of goods and money as a medium of exchange, an product of his labor. Rather, his incentive to work will involve his being able to consume the various goods purchased with his money wages. But this difference does not alter the point that an individuals incentives to work will tend toward the desirable under property rights and will tend to be suboptimal in their absence (b) In modern industrialized countries, the majority of individuals are motivated to work not because they consume or sell the output they produce, but rather because of the incentives and salary structure established by supervisory entities where they are mainly to certain farmers, artisans, shopowners, and independent professionaltricted employed. The individuals who have property rights in their own output are restricted (c) In extreme instances in which property rights break down, we observe that little productive work is done. During civil wars and other episodes of great upheaval productive work generally ceases. (Instead, people devote themselves to protecting what hey have, and some engage in looting. 2.3. Incentives to maintain and improve things. An essentially similar justification for property rights is that they are associated with incentives to maintain and improve things. If we reinterpret the model from the last section and assume that the result of work effort is the maintenance or improvement of durable things(as when individuals apply oil to machines or fertilize farm land), we may say that it is socially optimal for an individual to work an extra hour if the utility gained from maintenance and improvements exceeds the disutility of work. Further, this outcome will not occur in the absence of property rights; when durable things may be taken from individuals, they will ot benefit from improving them (if a machine would be taken from an individual, he will not have an incentive to maintain it well). When, however, individuals hold possessory they will possess the things in the future and therefore be able to enjoy the gains from o rights in durable things, they will have an optimal motive to improve the things becaus maintenance and improvements. Likewise, if there is a supervisory entity that can observe individual behavior, the supervisor can induce individuals to work optimally to maintain and improve things Comments. (a) Suppose that we take into account the possibility that durable things will be transferred in the future, for example, that farmland will change hands when the possessor becomes too old to continue to work. Then the socially optimal amount of effort to improve durable things will reflect the future use of things by new possessors as well as present ones; the socially desirable amount of fertilization of farmland will reflect the enhancement in its productivity for both current and future users Moreover, the socially optimal improvement in durable things will be promoted not only by possessory rights, but also by rights to transfer things. Notably, possessors will often transfer things by selling them and sales prices will generally reflect improvements made in things. Because present owners will anticipate this, they will be led to make Chapter 7-Page 6output, are, of course, different questions. The point here is simply that it is possible for the optimal outcome to be achieved if a supervisor has information about individuals’ work effort and possessory rights in output. Comments. (a) The conclusions just discussed about property rights and incentives to work carry over to more general and realistic settings (as will the conclusions about the other advantages of property rights to be discussed). In particular, in an economy with many kinds of goods and money as a medium of exchange, an individual’s incentive to work will not inhere in his being able to consume the literal product of his labor. Rather, his incentive to work will involve his being able to consume the various goods purchased with his money wages. But this difference does not alter the point that an individual’s incentives to work will tend toward the desirable under property rights and will tend to be suboptimal in their absence. (b) In modern industrialized countries, the majority of individuals are motivated to work not because they consume or sell the output they produce, but rather because of the incentives and salary structure established by supervisory entities where they are employed. The individuals who have property rights in their own output are restricted mainly to certain farmers, artisans, shopowners, and independent professionals. (c) In extreme instances in which property rights break down, we observe that little productive work is done. During civil wars and other episodes of great upheaval, productive work generally ceases. (Instead, people devote themselves to protecting what they have, and some engage in looting.) 2.3. Incentives to maintain and improve things. An essentially similar justification for property rights is that they are associated with incentives to maintain and improve things. If we reinterpret the model from the last section and assume that the result of work effort is the maintenance or improvement of durable things (as when individuals apply oil to machines or fertilize farm land), we may say that it is socially optimal for an individual to work an extra hour if the utility gained from maintenance and improvements exceeds the disutility of work. Further, this outcome will not occur in the absence of property rights; when durable things may be taken from individuals, they will not benefit from improving them (if a machine would be taken from an individual, he will not have an incentive to maintain it well). When, however, individuals hold possessory rights in durable things, they will have an optimal motive to improve the things because they will possess the things in the future and therefore be able to enjoy the gains from maintenance and improvements. Likewise, if there is a supervisory entity that can observe individual behavior, the supervisor can induce individuals to work optimally to maintain and improve things. Comments. (a) Suppose that we take into account the possibility that durable things will be transferred in the future, for example, that farmland will change hands when the possessor becomes too old to continue to work. Then the socially optimal amount of effort to improve durable things will reflect the future use of things by new possessors as well as present ones; the socially desirable amount of fertilization of farmland will reflect the enhancement in its productivity for both current and future users. Moreover, the socially optimal improvement in durable things will be promoted not only by possessory rights, but also by rights to transfer things. Notably, possessors will often transfer things by selling them and sales prices will generally reflect improvements made in things. Because present owners will anticipate this, they will be led to make Chapter 7 - Page 6