The property rights theory of production networks

Ivan Balbuzanov and Maciej Kotowski

Theoretical Economics, 2024, vol. 19, issue 4

Abstract: This paper investigates the formation of production and trading networks in economies with general interdependencies and complex property rights. We argue that the right to exclude, a core tenet of property, grants asset owners local monopoly power that is amplified by an economy's endogenous production network. Our analysis generalizes the exclusion core, a cooperative solution concept based on the right to exclude, to markets with production. We identify sufficient (and essentially necessary) conditions for the nonemptiness of the exclusion core. Multisourcing and a bias toward shorter supply chains emerge in exclusion-core outcomes. As a methodological contribution, we generalize the top trading cycles algorithm to a production economy and we show that it identifies outcomes in an economy's exclusion core.

Keywords: Property rights; production networks; top trading cycles; theory of the firm (search for similar items in EconPapers)
JEL-codes: C71 D23 D51 L14 (search for similar items in EconPapers)
Date: 2024-11-14
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Related works:
Working Paper: The Property Rights Theory of Production Networks (2019)
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