Property Rights, Transaction Costs And Resources Allocation: A New Paradigm Of The New Institutional Economics

The ambiguities of "property rights" and "transaction costs", both of which are essential concepts of the New Institutional Economics (NIE), have been impeding the development of the paradigm of the NIE. Beginning from the analysis of some misunderstandings on the two terms, this paper defines them operationally and scientifically. After distinguishing the meaning of property rights in economics from that in law, it defines property rights in economics as the rights or power of control over certain economic goods. Then, it extends the notions of opportunity costs to include not only transaction costs, but also "influence costs", which is firstly defined by this paper. These two costs express the key factors of resources allocation. It also defines the term "external costs" to reflect the "real" meanings of negative external effects that certain economic agent(s) have on other(s), and which can not be solved through voluntary transaction between economic agents. By using all these newly defined terms and extended notions mentioned above, this paper finally presents a new property-based framework for addressing economic analysis of resources allocation, which makes basic contribution to full construction of the paradigm of the NIE.