Government Regulation In The Process Of Chinese Marketization: An Analysis Of Property Rights

The necessity of government regulation has not yet reached any agreement, neither in theory nor in practice. Traditional theories insist that government regulation is rooted from the phenomenon of market failures such as monopoly, externality, public goods and information asymmetry. However, the analysis for phenomenon of market failures based the traditional theories do not share the uniform framework or same theoretical base, resulting in general analysis of phenomenon of market failures could not be made, therefore, and no convincing measures could be forwarded. The purpose of this paper is to probe the theoretical basis. As we all know, if the property rights of some resource has not been defined clearly, there will exist a public domain. The consequence in the public domain will become "the tragedy of the commons", due to rent dissipation of the valuable resource in the public domain. In essence, "the tragedy of the commons" is caused by the conflict between the private cost and social cost. So, we could deduce that fundamental reason of market failures is caused by the existence of the public domain in case a property rights has not been well defined. In public domain, the price mechanism could not play its role normally, which allows people not to bear the cost accordingly for his behaviors, thus, rent dissipation coming into being. Based on above analysis, the logic of government regulation theory should be as below: the property rights has not been defined clearly → appearance of public domain → failure of price mechanism → rent dissipation. In order to prove the logic further, it is highly necessary to put different market failures into the same framework to illustrate the mechanism why they lead to the appearance of public domain and rent desperation. Using cases, this paper indicates, the problem of monopoly should not be regarded as a market failure since the property rights has been defined well. As to public goods, internality and externality, the public domain exist since the property rights has not been defined well. If the government implements regulations in these fields, it will reduce the public domain and rent dissipation. However, this paper believes, market failures is a necessary condition instead of sufficient condition to government regulation. Cases in this paper show market mechanism has solved most problems once regarded as market failure issues in real life. In fact, the main strength to adjust market failure is market mechanism itself besides government and courts. Therefore, the comparative analysis of market, government and courts to adjust market failures is made and become an important part of this paper. This paper indicates no most optimum method is available to cure market failure in general meaning. That is, different market failures should be solved by different governance approaches. On such a basis, this paper explores the ways of getting rid of market failures further, attempting to reach a more general conclusion. This paper argues, only when automatic adjustment function of the market mechanism does not work, should government and court intervene to reboot market intrinsic function. In the process of China's realizing market economy, the establishment of market mechanism is largely depend on efficient exertion of government function and improvement of legal system. However, the current situations China confronted with is that, on the one hand, the government has not play its role in establishing market mechanism, which is still in its initial stage; on the other hand, the government intervenes too much, replaces the market mechanism partly, and impairs market's intrinsic mechanism influenced by planed economy and imperfect legal system. Therefore, the government regulation system meeting market economy requirements is far from formulation. Analyzing cases of over-regulation and lack-regulation, this paper indicates, on condition that property rights is clear, any government regulation measureswill malfunction market and cumber the process of marketization. Meanwhile, when public domain exists arising from unclear property rights, the ineffective government regulation will surely bring with economic disorder and rent dissipation. To ensure government regulation to define property rights, this paper indicates, clear property rights of government regulator itself is the premise of effective regulation. To meet requirement of establishment of socialist market economy, government of all levels should obey and sever the operation of market. The premise of effective operation of the market mechanism is well-defined property rights, which is between the lines of Coase Theorem and certainly the only way of developing economy. Therefore, all the necessity of government functions could only be embodied in defining property rights and government regulation is not the exception. The value of this paper lies in finding out the theoretical basis for government's function of regulation.