Property Rights in Sequential Exchange

Journal of Law, Economics, and Organization, 2019, 35(1), 127-53

35 Pages Posted: 27 Nov 2017 Last revised: 6 Feb 2024

See all articles by Benito Arruñada

Benito Arruñada

Pompeu Fabra University - Department of Economics and Business; Barcelona GSE

Giorgio Zanarone

University of Lausanne - School of Economics and Business Administration (HEC-Lausanne)

Nuno Garoupa

George Mason University - Antonin Scalia Law School

Date Written: November 21, 2017

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.

Suggested Citation

Arruñada, Benito and Zanarone, Giorgio and Garoupa, Nuno, Property Rights in Sequential Exchange (November 21, 2017). Journal of Law, Economics, and Organization, 2019, 35(1), 127-53, Available at SSRN: https://ssrn.com/abstract=3075131 or http://dx.doi.org/10.2139/ssrn.3075131

Benito Arruñada (Contact Author)

Pompeu Fabra University - Department of Economics and Business ( 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

Barcelona GSE ( email )

Ramon Trias Fargas, 25-27
Barcelona, Barcelona 08005
Spain

Giorgio Zanarone

University of Lausanne - School of Economics and Business Administration (HEC-Lausanne) ( email )

Unil Dorigny, Batiment Internef
Lausanne, 1015
Switzerland

Nuno Garoupa

George Mason University - Antonin Scalia Law School ( email )

3301 Fairfax Drive
Arlington, VA 22201
United States

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