Imperfect Property Rights: The Role of Heterogeneity and Strategic Uncertainty

University of St. Gallen Department of Economics Discussion Paper No. 2010-27

33 Pages Posted: 1 Apr 2011

See all articles by Philipp Denter

Philipp Denter

Universidad Carlos III de Madrid

Dana Sisak

Erasmus University Rotterdam (EUR) - Department of Economics; Tinbergen Institute

Date Written: March 10, 2011

Abstract

Property rights are undoubtedly among the most important institutions for economic efficiency. Still, by looking at reality we usually see property rights only imperfectly enforced. In this paper we identify uncertainty faced by an enforcer to be sufficient to explain this observation. This result is independent of the enforcer's risk preferences or enforcement ability. While perfectly enforced property rights may readily be established in all possible scenarios under complete information, introducing any amount of exogenous uncertainty leads to imperfect enforcement. Further, even under complete information, we show how an appropriator may create uncertainty endogenously by means of strategic restraint. Although this means that appropriation is always possible, this situation Pareto dominates perfect enforcement.

Keywords: Information, Conflict, Property Rights

JEL Classification: D02, D23, D74, D82

Suggested Citation

Denter, Philipp and Sisak, Dana, Imperfect Property Rights: The Role of Heterogeneity and Strategic Uncertainty (March 10, 2011). University of St. Gallen Department of Economics Discussion Paper No. 2010-27. Available at SSRN: https://ssrn.com/abstract=1669969 or http://dx.doi.org/10.2139/ssrn.1669969

Philipp Denter (Contact Author)

Universidad Carlos III de Madrid ( email )

CL. de Madrid 126
Madrid, Madrid 28903
Spain

Dana Sisak

Erasmus University Rotterdam (EUR) - Department of Economics ( email )

P.O. Box 1738
3000 DR Rotterdam
Netherlands

Tinbergen Institute ( email )

Burg. Oudlaan 50
Rotterdam, 3062 PA
Netherlands

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