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

See all articles by Carmine Guerriero

Carmine Guerriero

Department of Economics, University of Bologna

Multiple version iconThere are 3 versions of this paper

Date Written: March 10, 2019

Abstract

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

Guerriero, Carmine, Property Rights, Transaction Costs, and the Limits of the Market (March 10, 2019). Quaderni - Working Paper DSE N°1110. Available at SSRN: https://ssrn.com/abstract=3058095 or http://dx.doi.org/10.2139/ssrn.3058095

Carmine Guerriero (Contact Author)

Department of Economics, University of Bologna ( email )

Strada Maggiore 45
Bologna, 40125
Italy

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