A tale of two pizzas: are property values really yours to keep? – The Property Chronicle
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A tale of two pizzas: are property values really yours to keep?

The Professor

Spoiler: No, they’re not. However much we love our homes and the dollar figures that realtors assign to them, those values are not ours until the day we sell. 

But let’s start with the pizzas.  

Say you run a pizzeria in your town. You sell good pizzas and make a decent living. You’re too small to be a listed company with a minute-to-minute price of your shares, but since the business is well-run and makes a profit, a buyer would be willing to pay some nonzero amount for the business, say – the market value of the pizza joint. Since this isn’t traded daily, and no similar pizzerias have been sold recently, nobody knows what this number is. It isn’t tangible, we can’t observe it; we can guess, but nothing more. 

One day a rival shows up. A sneaky entrepreneur who spotted that your pizzeria was always full, even though your pizza really wasn’t that great. He sets up shop across the street, buys an oven, hires some staff and starts selling pizzas – perhaps even better pizzas than yours. It doesn’t take long before your restaurant isn’t as crowded, the revenues not as stellar and the business barely breaks even.

What’s the value of your pizza business now? 

It’s probably not zero (not yet, anyway), as you’re still making money and the equipment has some resale value, but it’s definitely less than x. The other guy’s business is also making some money and the value of the business would also be some nonzero number, say y.

Did your competitor steal from you? Did your competitor’s business impose a negative externality on your business? You had x, but then this kid showed up and drained it roughly by the difference between your old value (x) and his pizza shop’s value (y); some of the customers and revenues were diluted away from you towards him. You lost something that he gained and now you’re angry. 

Is this unfair? Are you entitled to compensation because he imposed negative financial consequences on you? You did, after all, have prior commitments, a mortgage to pay and a family to support. Surely, this guy is undermining your ability to do that.

The Professor

About Joakim Book

Joakim Book is a writer, researcher and editor on all things money, finance and financial history. He holds a masters degree from the University of Oxford and has been a visiting scholar at the American Institute for Economic Research in 2018 and 2019. His work has been featured in the Financial Times, FT Alphaville, Neue Zürcher Zeitung, Svenska Dagbladet, Zero Hedge, The Property Chronicle and many other outlets. He is a regular contributor and co-founder of the Swedish liberty site Cospaia.se, and a frequent writer at CapX, NotesOnLiberty, and HumanProgress.org.

Articles by Joakim Book

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