In the simplest terms, marginal analysis compares the marginal benefits with the marginal costs of any activity. The net benefits of the activity will be at a maximum when marginal benefits equal marginal costs. Individuals must have both the incentive and the information needed to make decisions that promote efficiency. The legal and institutional underpinnings of the market lead individuals to make efficient decisions. An important part of the legal system is the system of property rights.
Property rights are rules governing the use and disposition of resources.
Private property rights embody incentives that lead to the efficient use of resources. Individuals who use their resources inefficient bear the costs of the inefficiency in the form of lower incomes. Common property rights embody an entirely different set of incentives. Common property entails a nonexclusive right to use a resource. The notion of rationality implies that resources are used up to the point where the marginal benefit of their use equals the marginal cost.