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Property as sequential exchange: The forgotten limits of private contract

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Abstract

The contractual, single-exchange framework in Coase (1960) contains the implicit assumption that exchange in property rights does not affect future transaction (i.e., trading) costs. This is pertinent for analyzing use externalities but limits our understanding of property institutions: a central problem of property markets lies in the interaction among multiple transactions, which causes exchange-related and non-contractible externalities. By retaining a single-exchange simplification, the economic analysis of property has encouraged views that: (1) overemphasize the initial allocation of property rights, while some form of recurrent allocation is often needed; (2) pay scant attention to legal rights, although these determine enforceability and, therefore, economic value; and (3) overestimate the power of unregulated private ordering, despite its inability to protect third parties. These three biases have been misleading policy in many areas, including land titling and business firm formalization.

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  • Benito Arruñada, 2017. "Property as sequential exchange: The forgotten limits of private contract," Economics Working Papers 1547, Department of Economics and Business, Universitat Pompeu Fabra.
    • Handle: RePEc:upf:upfgen:1547
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    2. Manuel Serrano-Alarcón, 2021. "The Organization of Public Registries: A Comparative Analysis," Working Papers 2021-13, FEDEA.

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    More about this item

    Keywords

    property rights; externalities; enforcement; transaction costs; public ordering; private ordering; impersonal exchange; organized markets; blockchain.;
    All these keywords.

    JEL classification:

    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • K11 - Law and Economics - - Basic Areas of Law - - - Property Law
    • K12 - Law and Economics - - Basic Areas of Law - - - Contract Law
    • L85 - Industrial Organization - - Industry Studies: Services - - - Real Estate Services
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements
    • P48 - Political Economy and Comparative Economic Systems - - Other Economic Systems - - - Legal Institutions; Property Rights; Natural Resources; Energy; Environment; Regional Studies

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