The Elgar Companion to the Economics of Property Rights
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The Elgar Companion to the Economics of Property Rights

Edited by Enrico Colombatto

Economics is a matter of choice and growth, of interaction and exchange among individuals. Because property rights define the rules of these interactions and the objects of exchange, it is vital to fully understand the institutions and implications of the various property-rights regimes. With over 20 original and specially commissioned chapters, this book takes the reader from the historical and moral foundations of the discipline to the frontiers of scholarly research in the field.
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Chapter 14: Government Regulation and Property Rights

Dwight R. Lee


Dwight R. Lee Introduction I begin my comments on government regulation and property rights by emphasizing one of the least-noticed insights from one of the best-known quotations in economics. Adam Smith ([1776] 1981, p. 56) famously states, ‘[Every individual] generally, indeed, neither intends to promote the public interest, nor knows how much he is promoting it. … He intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which is no part his intention’ (emphasis added). Economists, and others, when discussing Adam Smith’s invisible hand, have emphasized how it renders good intentions unnecessary to achieving socially beneficial results. No one denies the importance of this insight, or faults the emphasis it has received. But to fully understand the implications of the invisible hand for a wide range of issues, including ‘government regulation and property rights’, one must consider the part of the Smith quotation I have italicized – when self-seeking people promote the public interest under the guidance of the ‘invisible hand’, they do not realize how much they are promoting it. On the other hand, one could describe the intentions and effects of government regulators by paraphrasing Smith’s famous statement as follows: ‘Each government regulator generally, neither intends to harm the public interest, nor knows how much he is harming it. … He intends (more often, pretends concern for) only the public interest, and he is in this, as in many other cases, led by an invisible...

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