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Deregulation, property rights, and legal system

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Abstract

During regulation the regulator carries out an intermediary role between shareholders and managers, consequently affecting property rights and the agency relation between the two. Deregulation implies that this intermediary role ceases to exist. This article analyses how government deregulation changes property rights, differentiating between firms of network and non-network structures. Changes in property rights affect the agency relation between shareholders and managers, increasing information asymmetry and agency costs. I argue that the way to reduce agency costs depend to a great extent on the country’s legal system classified as of common or civil law tradition.

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Notes

  1. Not so in Scotland where the UK government decided to maintain the vertical integration in Scotland (Onofri 2005).

  2. Onofri (2003) analyses how to design contracts so electricity companies could be efficient and get incentives for investments.

  3. An exception has been the UK where privatisation started first, so a public regulated monopoly was converted into a private unregulated monopoly with undesired results. Therefore, regulatory agencies had to be created to avoid the abuse of monopoly power.

  4. The authors also argue that private agreements are not possible internationally and then not suitable to regulate the Internet. Their proposal is that a cooperation between the government and the private sector would maximize social welfare.

  5. Not all scholars are of the same opinion as La Porta et al. (1998) but I believe their analysis is useful in explaining the behaviour we can expect from the regulator.

  6. There is still an ongoing debate if managers should only take into account shareholders’ interests or also include the interests of other stakeholders. In the United States, in 2000 already 25 states had incorporated the stakeholder concept, while in Europe, the European Commission’s High Level Group (HLG) expressed: “…managers are faced with a significant conflict of interests. Shareholders should be able to decide for themselves and stakeholders should be protected by specific rules (e.g. on labour law or environmental law).” (Kirkbride et al. 2005; HLG 2002: 2).

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  1. Department of Business, Faculty of Economics and Business, Autonomous University of Barcelona, Universitat Autònoma de Barcelona, Edifici B, Campus de la UAB, Cerdanyola del Vallés, 08193, Barcelona, Spain

    Eva Jansson

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Jansson, E. Deregulation, property rights, and legal system. Eur J Law Econ 26, 187–211 (2008). https://doi.org/10.1007/s10657-008-9055-9

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