IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper

Incomplete Property Rights and Overinvestment

  • J. Atsu Amegashie

    ()

    (Department of Economics,University of Guelph)

I consider a model in which an asset owner must decide how much to invest in his asset mindful of the fact that an encroacher’s valuation of the asset is increasing in the asset owner’s investment. Due to incomplete property rights, the encroacher and asset owner engage in a contest over the control of the asset after investment has taken place. A standard result is that the asset owner will underinvest in the asset relative to the first-best level of investment when property rights are complete. To check the robustness of this result, I extend the benchmark model by changing (i) the nature of competition over property rights, (ii) the information that the players have about each other, (iii) the duration of the interaction between the players, and (iv) the bargaining power of the encroacher. Contrary to recent results, I find that when the interaction between the asset owner and the encroacher is infinitely repeated and the encroacher has some bargaining power over the size of the transfer from the asset owner to him, then there is a cooperative equilibrium in which the asset owner finds it optimal to over-invest in the asset when property rights are incomplete relative to the first-best level of investment when property rights are complete. Overinvestment is used to induce cooperation. However, this result depends on the nature of transfers or the encroacher’s bargaining power.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.uoguelph.ca/economics/repec/workingpapers/2009/2009-02.pdf
Download Restriction: no

Paper provided by University of Guelph, Department of Economics and Finance in its series Working Papers with number 0902.

as
in new window

Length: 40 pages
Date of creation: 2009
Date of revision:
Handle: RePEc:gue:guelph:2009-2.
Contact details of provider: Postal:
Guelph, Ontario, N1G 2W1

Phone: (519) 824-4120 ext. 53898
Fax: (519) 763-8497
Web page: https://www.uoguelph.ca/economics/

More information through EDIRC

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Omar M. Razzaz, 1993. "Examining Property Rights and Investment in Informal Settlements: The Case of Jordan," Land Economics, University of Wisconsin Press, vol. 69(4), pages 341-355.
  2. Hart, Oliver D. & Moore, John, 1990. "Property Rights and the Nature of the Firm," Scholarly Articles 3448675, Harvard University Department of Economics.
  3. Pedro Dal Bó, 2005. "Cooperation under the Shadow of the Future: Experimental Evidence from Infinitely Repeated Games," American Economic Review, American Economic Association, vol. 95(5), pages 1591-1604, December.
  4. Konrad, Kai A., 2001. "Investment in the Absence of Property Rights: The Role of Incumbency Advantages," CEPR Discussion Papers 3050, C.E.P.R. Discussion Papers.
  5. Johannes Hörner & Nicolas Sahuguet, 2007. "Costly Signalling in Auctions -super-1," Review of Economic Studies, Oxford University Press, vol. 74(1), pages 173-206.
  6. Robinson, James A. & Torvik, Ragnar, 2005. "White elephants," Journal of Public Economics, Elsevier, vol. 89(2-3), pages 197-210, February.
  7. Francisco M. Gonzalez, 2005. "Insecure Property and Technological Backwardness," Economic Journal, Royal Economic Society, vol. 115(505), pages 703-721, 07.
  8. Greif, Avner, 1994. "Cultural Beliefs and the Organization of Society: A Historical and Theoretical Reflection on Collectivist and Individualist Societies," Journal of Political Economy, University of Chicago Press, vol. 102(5), pages 912-50, October.
  9. Baye, M.R. & Kovenock, D. & De Vries, C.G., 1991. "The All-Pay Auction With Complete Information," Purdue University Economics Working Papers 1007, Purdue University, Department of Economics.
  10. Grossman, Sanford J & Hart, Oliver, 1985. "The Cost and Benefits of Ownership: A Theory of Vertical and Lateral Integration," CEPR Discussion Papers 70, C.E.P.R. Discussion Papers.
  11. Allen, Douglas W, 2002. "The Rhino's Horn: Incomplete Property Rights and the Optimal Value of an Asset," The Journal of Legal Studies, University of Chicago Press, vol. 31(2), pages S339-58, June.
  12. Arye L. Hillman & John G. Riley, 1989. "Politically Contestable Rents And Transfers," Economics and Politics, Wiley Blackwell, vol. 1(1), pages 17-39, 03.
  13. Gonzalez, Francisco M. & Neary, Hugh M., 2008. "Prosperity without conflict," Journal of Public Economics, Elsevier, vol. 92(10-11), pages 2170-2181, October.
  14. Ariel Rubinstein, 2010. "Perfect Equilibrium in a Bargaining Model," Levine's Working Paper Archive 661465000000000387, David K. Levine.
  15. Anbarci, Nejat & Skaperdas, Stergios & Syropoulos, Constantinos, 2002. "Comparing Bargaining Solutions in the Shadow of Conflict: How Norms against Threats Can Have Real Effects," Journal of Economic Theory, Elsevier, vol. 106(1), pages 1-16, September.
  16. Skaperdas, S., 1991. "Cooperation, Conflict And Power In The Absence Of Property Rights," Papers 90-91-06a, California Irvine - School of Social Sciences.
  17. Markus Goldstein & Christopher Udry, 2008. "The Profits of Power: Land Rights and Agricultural Investment in Ghana," Journal of Political Economy, University of Chicago Press, vol. 116(6), pages 981-1022, December.
  18. Joseph Farrell & Matthew Rabin, 1996. "Cheap Talk," Journal of Economic Perspectives, American Economic Association, vol. 10(3), pages 103-118, Summer.
  19. Smith, Henry E, 2002. "Exclusion versus Governance: Two Strategies for Delineating Property Rights," The Journal of Legal Studies, University of Chicago Press, vol. 31(2), pages S453-87, June.
  20. Maija Halonen, 2002. "Reputation And The Allocation Of Ownership," Economic Journal, Royal Economic Society, vol. 112(481), pages 539-558, July.
  21. Abreu, Dilip, 1988. "On the Theory of Infinitely Repeated Games with Discounting," Econometrica, Econometric Society, vol. 56(2), pages 383-96, March.
  22. Busch, Lutz-Alexander & Wen, Quan, 1995. "Perfect Equilibria in Negotiation Model," Econometrica, Econometric Society, vol. 63(3), pages 545-65, May.
  23. Nti, Kofi O, 1999. "Rent-Seeking with Asymmetric Valuations," Public Choice, Springer, vol. 98(3-4), pages 415-30, March.
  24. A. Michael Spence, 1977. "Entry, Capacity, Investment and Oligopolistic Pricing," Bell Journal of Economics, The RAND Corporation, vol. 8(2), pages 534-544, Autumn.
  25. Besley, Timothy, 1995. "Property Rights and Investment Incentives: Theory and Evidence from Ghana," Journal of Political Economy, University of Chicago Press, vol. 103(5), pages 903-37, October.
  26. Paola Conconi & Nicolas Sahuguet, 2009. "Policymakers' Horizon and the Sustainability of International Cooperation," ULB Institutional Repository 2013/98547, ULB -- Universite Libre de Bruxelles.
  27. Abreu, Dilip, 1986. "Extremal equilibria of oligopolistic supergames," Journal of Economic Theory, Elsevier, vol. 39(1), pages 191-225, June.
  28. Gonzalez, Francisco M., 2007. "Effective property rights, conflict and growth," Journal of Economic Theory, Elsevier, vol. 137(1), pages 127-139, November.
  29. J. Amegashie, 2008. "Incomplete property rights, redistribution, and welfare," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 30(4), pages 685-699, May.
  30. Greif, Avner, 1993. "Contract Enforceability and Economic Institutions in Early Trade: the Maghribi Traders' Coalition," American Economic Review, American Economic Association, vol. 83(3), pages 525-48, June.
  31. JÕzsef SÂkovics & Clara PonsatÎ, 1998. "Rubinstein bargaining with two-sided outside options," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 11(3), pages 667-672.
  32. Allen, Douglas & Lueck, Dean, 1992. "Contract Choice in Modern Agriculture: Cash Rent versus Cropshare," Journal of Law and Economics, University of Chicago Press, vol. 35(2), pages 397-426, October.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:gue:guelph:2009-2.. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Stephen Kosempel)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.