Property Rights, Transaction Costs, and the Limits of the Market
Quaderni - Working Paper DSE N°1110
45 Pages Posted: 25 Oct 2017 Last revised: 12 Mar 2019
Date Written: March 10, 2019
Although property rights and transaction costs are key, their drivers and interaction are poorly understood. Here, I develop a model of the exchange of either assets or inputs clarifying why property rights are weakened because of sizable market frictions and failures and why the latter are more severe if either the dispersion in the traders' valuations or the odds of cheaper innovation are larger. These predictions survive if some agents have more political influence on institutional design and if the disincentive effect of weak property rights is considered. Crucially, they are also consistent, across several identification strategies, with the interplay among proxies for the availability of technological innovations, transaction costs and protection of property for a panel of 135 countries spanning the 2006-2015 period, and they imply that the negative correlation between weak property rights and economic outcomes might be partly spurious.
Keywords: Property Rights, Transaction Costs, Frictions, Market Failures, Technology
JEL Classification: D23; D40; K11; O12
Suggested Citation: Suggested Citation