Property rights in sequential exchange

Benito Arruñada, Giorgio Zanarone and Nuno Garoupa

Economics Working Papers from Department of Economics and Business, Universitat Pompeu Fabra

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 conventional 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: Property rights; enforcement; contracts; incomplete information; 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-law
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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:upf:upfgen:1588

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