The Property Rights Theory of Production Networks

Ivan Balbuzanov and Maciej Kotowski

Working Paper Series from Harvard University, John F. Kennedy School of Government

Abstract: This paper investigates the formation of production and trading networks in an economy with general interdependencies and complex property rights. The right to exclude, a core tenet of property, grants asset owners a form of monopoly power that influences granular economic interactions. Equilibrium networks reflect the distribution of these ownership claims. Inefficient production networks may endure in equilibrium as firms multi-source to mitigate hold-up risk. Short supply chains also reduce this risk, but may preclude the production of complex goods. A generalized Top Trading Cycles algorithm, applicable to a production economy, identifies equilibrium outcomes in the model. Such outcomes can be decentralized via a price system.

JEL-codes: C71 D51 L14 (search for similar items in EconPapers)
Date: 2019-11
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Journal Article: The property rights theory of production networks (2024)
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Persistent link: https://EconPapers.repec.org/RePEc:ecl:harjfk:rwp19-033

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