Diamonds are Forever - Property Rights
I'm posting a 14-part series of mini-essays on diamonds (but really about the economic point of view). Here's part 12.
Property Rights
Property rights, in the economic sense, describe a person’s capacity to exercise control over an asset.
Control refers to the ability to appropriate the services an asset may render. Private property rights exist when the ability to exercise control is held by a party or parties who aren’t part of government.
For instance, a private property right gives a diamond owner the ability to display it (on the owner’s property), destroy it (see the point about hammers above), exchange it, wear it, or bury it in the owner’s backyard.
Yet, property rights do not fall exogenously from the heavens. They require resources to establish, define, and protect against all-comers. How much owners invest in protecting their property rights derives from how highly they value the property in question. Diamonds are highly valuable assets—see their market price—which suggests that people will invest significant quantities of resources in their protection.
Think of any heist movie. Much of the plot’s drama resides in how the would-be thieves will overcome the series of near-impossible obstacles standing between them and the object of their desire. It’s that way with diamonds too. People keep their diamonds in expensive lockboxes or behind crisscrossing lasers.
It’s instructive to contrast diamonds with another small object: pencils. How many resources do people typically expend to secure property rights to their writing utensils? Almost none. Pencil thieves, therefore, abound. Yet somehow the pencil thief problem does not rise to the level of national conversation.
On the flip side, people never absent-mindedly leave diamonds scattered on their desks.
The bottom line is that the strength of private property rights protection is a choice variable. The value of the resources in question influence that choice.