Property Rights Regulation

Property rights give the power to limit use by others of specific land, plant and equipment, and other assets. The deed to a piece of land, for example, explicitly defines a property right. The establishment and maintenance of private property rights is essential to the workings of a competitive market. Property rights are so fundamental to the free market economy and democratic form of government that they are protected in the United States by the Fifth Amendment to the Constitution. Although local zoning laws limit property rights by restricting the types of buildings allowed in a particular neighborhood, these laws cannot be so burdensome as to deprive owners from the rightful use of their property. Although the public interest might be served by regulations designed to preserve wetlands or endangered species, owners are entitled to compensation for any loss they might suffer as a result.

Regulation of property rights is a common, though seldom discussed, method of giving incentives to promote service in the public interest. Common examples are FCC control of local television and radio broadcasting rights; federal and state regulatory bodies that govern national or state chartering of banks and savings and loan institutions; and insurance commissions that oversee insurance company licensing at the state level. In each of these instances, firms must be able to demonstrate fiscal responsibility and evidence that they are meeting customer needs. Should firms fail to meet established criteria, public franchises can be withdrawn, or new franchises can be offered to potential competitors.

Property rights regulation can be effective, but can be frustrated by imprecise operating criteria. For example, how much poorly rated local programming should any given television station be required to produce? How progressive a stance should local banks take toward electronic funds transfer services? Without clear, consistent, and workable standards of performance, operating grant regulation is hampered by inefficiency and waste.


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