Presentation on theme: "Property rights and regulation"— Presentation transcript:
1 Property rights and regulation Unit 4: Economics of the Public SectorProperty rights and regulation
2 The Government and the Market Economy Consider this quote from the economist Charles Wheelan:“Good government makes a market economy possible. Period. And bad government, or no government, dashes capitalism against the rocks, which is one reason that billions of people live in dire poverty around the globe.”
3 The Constitution says… That Congress has the following economic powers:To lay and collect taxesTo provide for the general welfareTo borrow moneyTo regulate interstate and foreign commerceTo establish uniform bankruptcy lawsTo coin money and regulate its valueTo fix the standard of weights and measuresTo protect the writings and discoveries of authors and inventors
4 The Government and Property Rights Because incentives matter, the ownership of property creates a number of incentives to promote economic progressWHY???
5 Government Protects Private Property LandPersonal PossessionsOther physical assetsAnd…Intellectual Property!Protecting property rights essential to success of free market system…why?Because INCENTIVES MATTERPrivate Ownership encourages people to take care of their property – value of houseEncourages people to make most productive use of their property –maximize crop yield, e.g.Encourages people to develop their property in ways that benefit others – if others benefit from use, owner makes more money.
6 Property Owner RightsOwners of private property have the following rights:The right to exclusive use of their propertyThe right to legal protection against trespassers or abusers of their propertyThe right to sell or trade their property
7 One exception to the rights of owners of private property… Eminent domainIs the power to force the transfer of property from a private owner to the government for a public purposePartner Discussion:Identify 2 scenarios that eminent domain might be used by the government
8 Partner DiscussionHow does the government protect the people’s property rights? List at least 2 ways the government protects private property.
9 The Government and Property Rights The government protects the rights of property owners mainly:Through the court systemBy issuing patents, copyrights, and trademarks
10 The Government and Regulation Through regulation, the government seeks to protect the interests of all participants in the economyIt does this by:Maintaining competitionProtecting consumers, savers, and investorsProtecting workers
11 Maintaining Competition Competition is essential to a free market economyEfficient use of resourcesInnovationEnsure lowest possible pricesWhen markets fail to be competitive, the government steps in to ensure or encourage competition
12 Maintaining Competition Regulatory agenciesJustice DepartmentFederal Trade CommissionInvestigate and enforce laws protecting against:Price fixingBid riggingMarket divisionMonopolies and trusts
13 Protecting Consumers, Savers, and Investors To ensure that consumers, savers, and investors:Possess all necessary information to make wise and safe choicesAre protected against unscrupulous/dishonest businesses and individualsFeel confident about their economic choices
14 Protecting Consumers, Savers, and Investors Regulatory AgenciesFood and Drug Administration (FDA)“there was never the least attention paid to what was cut up for sausage…there would be meat that had tumbled out on the floor, the dirt and sawdust, where the workers had tramped and spit…meat stored in great piles in rooms; and the water from leaky roofs would drip over it, and thousands of rats would race about on it…these rats were nuisances, and the packers would put poisoned bread out for them; they would die and then the rats, bread and meat would go into the hoppers together” Upton SinclairConsumer Product Safety CommissionSavers and InvestorsFederal Deposit Insurance Corporation (FDIC)Security and Exchange Commission (SEC)
15 Protecting Workers To ensure that workers: Get the wages due to them Work in workplaces free from discriminationAre provided unemployment insuranceHealth and well-being is protected in the workplace
16 Protecting Workers Regulatory Agencies Department of Labor Occupational Safety and Health Administration (OSHA)
17 Partner DiscussionHow might government regulation be bad or negatively interfere with the marketplace?Identify two possible instances of the negative side of government regulation
18 The Downside to Government Regulation OverregulationCompliance with some regulation is expensiveMight discourage economic activityE.g. OSHA standard on ladder safety:“The general slope of grain in flat steps of minimum dimension shall not be steeper than 1 in 12, except that for ladders under 10 feet in length the slope shall not be steeper than 1 in 10…local deviations of grain associated with otherwise permissible irregularities are permitted”Balancing costs and benefitsDebate over: At what point is regulation unnecessary or needs to end?Example: Clean Water Act – how clean does water have to be?
19 The Downside to Government Regulation Regulatory captureBest regulators are people who worked in the industry being regulatedBest people to ensure an industry is in line with government regulations is the people who worked in the regulatory agencyThis creates a “revolving door”Regulatory capture = regulatory agencies are dominated by the industries they regulateCaptured agencies act in the best interest of the industry rather than in the public interest