First Possession holds the point that nobody owns fugitive property until someone possesses it. And first to “capture” a resource owns it.
“first in time, first in right”
However, the Tied Ownership holds another point of view.
Advantage:
Simpler to apply - easy to determine who possessed property first.
Disadvantage:
Create the incentive to invest too much too early in order to establish (overproduce problem)
▶ In a contest for title, persons try to get ownership rights transferred to themselves.
▶ Economic efficiency, however, concerns the production of wealth, not the transfer of it.
▶ Investments for the sake of transferring wealth, not producing it, are socially inefficient.
Example:
The Drilling Example: (Also a kind of Nash Equilibrium)
The Externality View
Under the First Possession rule, people may compete for ownership. ⇒ people would not internalize the effects on others when making decisions, which is negative Externality
decides to make greater traps against , which reduces ‘s chance. (See Crabbing)
If there are no Transaction Cost, they could Bargaining with each other until the efficient outcome reach. (See Coase Theorem). However, in most cases, Transaction Cost here is usually very high!
How to solve such problems? We introduce the tax or regulations, the Pigou Tax would be one of the famous.