Rossi, Enrico
(2017)
Regulating asset ownership: capabilities and market failures in infrastructures.
PhD thesis, London School of Economics and Political Science.
Abstract
The regulation of assets and infrastructures has always been a central problem of economic theory. The first approach of regulatory and antitrust authorities was to regard assetownership as a source of welfare inefficiency. This was the “monopoly explanation” that was contested by Coase. Developing from Coase’s original intuitions, a contractual approach emerged in regulatory economics. This second tradition relies on the concept of transaction costs, or market failures, to justify the role of ownership for welfare and regulatory purposes. Yet, even though in the contractual approach ownership is not regarded as a necessary source of welfare inefficiencies, it still remains the necessary consequence of some dysfunctional characteristic of the market mechanism.
This study addresses the role of asset ownership understood in terms of the owner’s subjective use value. The aim is thus to provide a theory of ownership based on a reinterpretation of the concept of value, relying on the classical dualism between value-inexchange and value-in-use. Private ownership of a good or resource becomes relevant for welfare and efficiency purposes whenever assets can be redeployed internally across alternative subjective opportunities by the owner to satisfy their private, subjective, requirements. Through in-house redeployment, the asset owner becomes independent of the performances and requirements of external market mechanisms.
If auto-employment is allowed, then two conditions are satisfied. First, the performance of the market mechanism becomes unnecessary to understand how assets are allocated among alternative uses. This makes market failures and transaction costs a non-necessary requirement to justify asset ownership and to understand its welfare implications. Second, the knowledge of an actor’s subjective capabilities in the use and employment of the asset (knowing how an actor prefers to privately use and consume an asset) becomes necessary in order to understand how different ownership patterns affect the set of idiosyncratic opportunities perceived by different potential assets owners.
If auto-redeployment (in-house enjoyment or auto-consumption) is allowed, then we can see that the idiosyncratic opportunities perceived by the actors are not necessarily driven by external market mechanisms, nor by its performance. Yet, they remain relevant in order to derive normative conclusions on the allocative outcomes. This can be seen as a make-or-buy problem where the trade-off between “make” and “buy” can be reinterpreted as a trade-off in value terms, between subjective value-in-use and objective value-in-exchange. The different interpretation of the make option marks the difference between the make-or-buy problem modelled in the contract-based theory of ownership versus a capability based theory of ownership.
The work argues that, whenever physical assets are privately owned and can be employed “in-house”, in order to legitimately derive normative conclusions on how privately owned assets ought to be employed in a society, some form of public regulation is always needed in order to overcome the inherent presence of subjective (actor-specific) valuations. For this reason, the work concludes that whenever value in not a monism, the legal framework should always have logical and temporal priority over the competitive mechanism of the market, independently from the performance of the latter.
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