The Importance of Property Rights

An important extension of the Coase Theorem for economic policy makers is that the creation of well-defined and easily enforced legal entitlements is crucial for economic growth.

When shareholders have more rights, people are more likely to invest in markets, because they have more protections against dishonest executives. When creditors have more rights, they are more likely to lend money, which spurs markets to grow. And when countries are free from corruption, investors put more money into them.

That quotation is from Legal Affairs, which summarizes research showing that economies based on the Common Law tend to have high growth rates than economies based on the civil or Napoleanic Code.

It seems pretty clear that the stability of legal entitlements is of paramount importance, regardless of the type of legal system. The study cited by Legal Affairs seems, however, to show that legal entitlements are more likely to be stable for longer periods of time in Common Law jurisdictions.

Sparky at SCSU Scholars has a superb post making a similar point: that for the long-run, an important form of aid for those stricken by the tsunami, is improved definition and enforcement of stable property rights.