Property as Sequential Exchange: The Forgotten Limits of Private Contract

Pompeu Fabra University Economics and Business Working Paper Series 1547

35 Pages Posted: 6 Dec 2016 Last revised: 26 Jan 2017

Benito Arruñada

Pompeu Fabra University

Date Written: January 2017

Abstract

The contractual, single-exchange framework in Coase (1960) contains the implicit assumption that exchange in property rights does not affect future transaction (i.e., trading) costs. This is pertinent for analyzing use externalities but limits our understanding of property institutions: a central problem of property markets lies in the interaction among multiple transactions, which causes exchange-related and non-contractible externalities. By retaining a single-exchange simplification, the economic analysis of property has encouraged views that: (1) overemphasize the initial allocation of property rights, while some form of recurrent allocation is often needed; (2) pay scant attention to legal rights, although these determine enforceability and, therefore, economic value; and (3) overestimate the power of unregulated private ordering, despite its inability to protect third parties. These three biases have been misleading policy in many areas, including land titling and business firm formalization.

Keywords: Property Rights, Externalities, Enforcement, Transaction Costs, Public Ordering, Private Ordering, Impersonal Exchange, Organized Markets, Blockchain

JEL Classification: D23, K11, K12, L85, G38, H41, O17, P48

Suggested Citation

Arruñada, Benito, Property as Sequential Exchange: The Forgotten Limits of Private Contract (January 2017). Pompeu Fabra University Economics and Business Working Paper Series 1547. Available at SSRN: https://ssrn.com/abstract=2879827

Benito Arruñada (Contact Author)

Pompeu Fabra University ( email )

Ramon Trias Fargas 25-27
Department of Economics and Business
Barcelona, 08005
Spain
+34 93 542 25 72 (Phone)
+34 93 542 17 46 (Fax)

HOME PAGE: http://www.econ.upf.edu/~arrunada

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