When Deregulation Makes Things Worse Before They Get Better

Abstract

Under perfect competition Smith’s Invisible Hand is understood to avoid deadweight losses and other inefficiencies. By contrast with private property, the push — shove equilibrium on unappropriated lands leads to various tragedies of the Common. We owe to A. Young’s (1913) correction of Pigou’s mistake (concerning increasing-cost industries and pecuniary external diseconomies) the demonstration that competitive rent-collecting achieves social efficiency (à la Pareto if not Bentham-Bergson). D.H. Robertson (1924) and F.H. Knight (1924) have developed Young’s insight and in later editions of Economics of Welfare Pigou finally conceded the point.

This line of research stems from a chance remark about retailer deregulation made by Lady Hall in 1961 when she was a visiting professor at MIT. I owe thanks to the MIT Center for Real Estate Development for financial aid and, for editorial assistance, thanks to Aase Huggins and Ruth Pelizzon.