Final answer:
A claim or title enforceable by law, such as the ability to use water, is termed a property right. Property rights allow for legal ownership and use of a resource and are crucial for contracting and resolving disputes. These rights dictate whether an individual or entity has to invest in protection or compensate for damages.
Step-by-step explanation:
A claim or title to anything that is enforceable by law, such as the ability to use water, is known as a property right. These rights are essential components of the rule of law and are necessary for the market to function effectively and efficiently. Property rights grant individuals and firms legal ownership of a resource and the authority to use it as they see fit, which includes entering into contracts concerning said resource.
Ensuring the clarity of property rights is pivotal as illustrated by economist Ronald Coase. Without well-defined responsibilities and entitlements, disputes can become endless and unproductive. But when property rights are clear, the parties involved can negotiate or litigate to reach solutions that minimize harm or compensate for damages.
For instance, if a farmer has a property right not to have his field burned, they can require compensation from a railroad whose sparks might set the field alight. Conversely, if the railroad has a well-defined legal responsibility, it will find the most cost-effective way to ensure its trains do not cause damage. This determination fundamentally shapes how and whether each entity invests in protective measures or pays for damages.