Property Rights in Sequential Exchange

Nuno Garoupa, Giorgio Zanarone and Benito Arruñada
Authors registered in the RePEc Author Service: Benito Arruñada

No 1005, Working Papers from Barcelona School of Economics

Abstract: We analyze the "sequential exchange" problem in which traders have incomplete information on earlier contracts. We show that under sequential exchange, it is in general not possible to simultaneously implement two key features of markets-specialization between asset ownership and control, and impersonal trade. In particular, we show that in contrast with the conventio nal wisdom in economics, strong property rights-enforceable against subsequent buyers- may be detrimental to impersonal trade. Finally, we provide conditions under which a mechanism that overcomes the tradeoff between specialization and impersonal trade exists, and we characterize such mechanism. Our results provide an efficiency rationale for how property rights are enforced in business, company and real estate transactions, and for the ubiquitousness of "formalization" institutions that the literature has narrowly seen as entry barriers.

Keywords: contracts; Incomplete Information; enforcement; Property rights; impersonal exchange (search for similar items in EconPapers)
JEL-codes: D23 D83 K11 K22 (search for similar items in EconPapers)
Date: 2017-11
New Economics Papers: this item is included in nep-cta, nep-des and nep-mic
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Related works:
Journal Article: Property Rights in Sequential Exchange (2019)
Working Paper: Property rights in sequential exchange (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:bge:wpaper:1005

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