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Good Fences Make Good Neighbors: Endogenous Property Rights in a Game of Conflict

  • John R. Boyce
  • David M. Bruner

This paper derives the conditions under which property rights can arise in an anarchy equilibrium. The creation of property rights requires that players devote part of their endowment to the public good of property rights protection. In the Nash equilibrium, players contribute zero to the protection of property rights. In contrast, a king who provides property rights protection paid for by a tax on endowments can completely eliminate conflict, but such a king has an incentive to take the surplus for himself. Thus players have an incentive to find a solution that keeps power in their own hands. In a social contract, players first credibly commit part of their endowments to providing property rights and then allocate the balance of their endowments between production and conflict. While property rights can arise under a social contract if the productivity of resources relative to the size of the population is sufficiently high, these property rights may be less than perfectly secure. Nevertheless, for sufficiently high productivity of resources relative to the size of the population, the social contract welfare dominates autocracy. Key Words:

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Paper provided by Department of Economics, Appalachian State University in its series Working Papers with number 09-05.

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Date of creation: 2009
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Handle: RePEc:apl:wpaper:09-05
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Web page: http://www.business.appstate.edu/departments/economics/

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  1. Garfinkel, Michelle R. & Skaperdas, Stergios, 2007. "Economics of Conflict: An Overview," Handbook of Defense Economics, Elsevier.
  2. Merrill, Thomas W, 2002. "Introduction: The Demsetz Thesis and the Evolution of Property Rights," The Journal of Legal Studies, University of Chicago Press, vol. 31(2), pages S331-38, June.
  3. Grossman, Herschel I & Kim, Minseong, 1995. "Swords or Plowshares? A Theory of the Security of Claims to Property," Journal of Political Economy, University of Chicago Press, vol. 103(6), pages 1275-88, December.
  4. Hurwicz, Leonid, 2007. "But Who Will Guard the Guardians?," Nobel Prize in Economics documents 2007-3, Nobel Prize Committee.
  5. Libecap, Gary D & Wiggins, Steven N, 1985. "The Influence of Private Contractual Failure on Regulation: The Case of Oil Field Unitization," Journal of Political Economy, University of Chicago Press, vol. 93(4), pages 690-714, August.
  6. Dixit, Avinash K, 1987. "Strategic Behavior in Contests," American Economic Review, American Economic Association, vol. 77(5), pages 891-98, December.
  7. Skaperdas, Stergios, 1992. "Cooperation, Conflict, and Power in the Absence of Property Rights," American Economic Review, American Economic Association, vol. 82(4), pages 720-39, September.
  8. Tollison, Robert D, 1982. "Rent Seeking: A Survey," Kyklos, Wiley Blackwell, vol. 35(4), pages 575-602.
  9. Clay, Karen & Wright, Gavin, 2005. "Order without law? Property rights during the California gold rush," Explorations in Economic History, Elsevier, vol. 42(2), pages 155-183, April.
  10. Boyce, John R. & Nøstbakken, Linda, 2011. "Exploration and development of U.S. oil and gas fields, 1955-2002," Journal of Economic Dynamics and Control, Elsevier, vol. 35(6), pages 891-908, June.
  11. Martin Kolmar, 2008. "Perfectly Secure Property Rights and Production Inefficiencies in Tullock Contests," Southern Economic Journal, Southern Economic Association, vol. 75(2), pages 441-456, October.
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