Property Rights and Price Control
This chapter applies the property rights framework to analyze the effects of price control of goods and services for which market price is available. Price control is effected to deliver benefits to the mass population by setting the prices of certain goods or services below or above the market clearing price. However, regulators’ intention to increase social welfare by controlling prices may turn into a futile attempt if all the relevant attributes that affect the price of that particular good or service cannot be perfectly delineated. However, doing so would be practically infeasible due to high transaction costs. Thus, some attributes of property remain unassigned. In these circumstances, suppliers tend to economize on those attributes which are imperfectly delineated. On the other hand, buyers spend additional resources to capture a portion of the value that is left in the public domain. Since resources are spent for already produced goods, economic inefficiency follows. Cases are presented to substantiate arguments raised here.
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