Property rights as a way to think regulations

In any economic space, a set of fundamental rules delineates the rights to use economic resources and allocates these rights to interacting agents. The activity of settling these “rules of the game” played by agents can be qualified as regulation. This broad definition of regulation is useful for at least two purposes. First, it creates a common framework for thinking both so-called “self-regulation” and “State regulation”, since it does not refer to the entity responsible for setting up the “rules of the game” for the “players”. Indeed, it can either be some exogenous third party – such as the State – or the players themselves that (consciously or not) interact and set collective rules. Second, in the spirit of Coase (1960), this definition makes it clear that the management of externalities, public goods and other sources of “market failures” is an aspect of the greater activity of organizing the framework in which agents interact and exchange and corresponds to the notion of a property rights (PRs) system as stated by Barzel (1989) and North (1990). By delineating and allocating rights of uses to economic agents, a PRs system establishes the way they can individually or collectively make decisions about the uses of resources. In that general understanding, setting a PRs system implies four major activities: setting rules; supervising their enforcement and punishing infringements; settling conflicts, since there are always ambiguities in rules and therefore different interpretations; and implementing decision mechanisms when rules do not apply, since there is always some incompleteness in a system of rules.