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Property Rights in Sequential Exchange

Author

Listed:
  • Benito Arruñada
  • Giorgio Zanarone
  • Nuno Garoupa

Abstract

We analyze the “sequential exchange” problem in which traders have imperfect 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 because they expose asset buyers to the risk of collusive relationships between owners and sellers. Finally, we provide conditions under which a mechanism that overcomes the trade-off between specialization and impersonal trade exists. We characterize and discuss 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

  • Benito Arruñada & Giorgio Zanarone & Nuno Garoupa, 2019. "Property Rights in Sequential Exchange," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 35(1), pages 127-153.
    • Handle: RePEc:oup:jleorg:v:35:y:2019:i:1:p:127-153.
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    File URL: http://hdl.handle.net/10.1093/jleo/ewy023
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    Cited by:

    1. Carmine Guerriero, 2023. "Property rights, transaction costs, and the limits of the market," Economics of Governance, Springer, vol. 24(2), pages 143-176, June.
    2. Yasir Amin, 2025. "Property rights, transaction costs and economic outcomes," Economics of Governance, Springer, vol. 26(3), pages 371-400, September.
    3. Benito Arruñada, 2023. "The Roman Familia: A View from the Economics of Property," Working Papers 1407, Barcelona School of Economics.
    4. Ali, Daniel Ayalew & Deininger, Klaus, 2024. "Using registry data to assess gender-differentiated land and credit market effects of urban land policy reform: Evidence from Lesotho," World Development, Elsevier, vol. 175(C).

    More about this item

    JEL classification:

    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • K11 - Law and Economics - - Basic Areas of Law - - - Property Law
    • K22 - Law and Economics - - Regulation and Business Law - - - Business and Securities Law

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