Property Rights in Sequential Exchange

UPF Economics & Business Working Paper Series 1588

39 Pages Posted: 27 Nov 2017  

Benito Arruñada

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

Giorgio Zanarone

CUNEF

Nuno Garoupa

Texas A&M University School of Law; Catholic University of Portugal (UCP) - Católica Global School of Law

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). UPF Economics & Business Working Paper Series 1588. 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

CUNEF ( email )

Leonardo Prieto Castro 2
Madrid, Madrid 28040
Spain

HOME PAGE: http://gzanarone.cunef.edu

Nuno Garoupa

Texas A&M University School of Law ( email )

1515 Commerce St.
Fort Worth, TX 76102
United States

Catholic University of Portugal (UCP) - Católica Global School of Law ( email )

Lisboa
Portugal

Register to save articles to
your library

Register

Paper statistics

Downloads
45
Abstract Views
160
PlumX