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"Who's the thief?": Asymmetric Information and the Creation of Property Rights

  • Philipp Denter

    ()

  • Dana Sisak

    ()

This paper studies the creation of property rights in a state of anarchy and in the presence of uncertainty about a potential appropriator's ability. In a game of conflict, securing property can be achieved by spending resources for protection. We show that secure property rights will never emerge in equilibrium. The reason for this finding is not that it is not possible to secure property in principle, but that because of uncertainty agents will choose to protect their possessions against an expected appropriator and not against the most able one. Hence, agents voluntarily expose themselves to the risk of losing ownership. This finding has important consequences, since secure property rights are a fundamental prerequisite of economic activity, and insecure property may for example hinder the exploitation of mutually beneficial trade opportunities or distort investment and production incentives.

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File URL: http://www1.vwa.unisg.ch/RePEc/usg/dp2010/DP-1027-DeSi.pdf
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Paper provided by Department of Economics, University of St. Gallen in its series University of St. Gallen Department of Economics working paper series 2010 with number 2010-27.

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Length: 20 pages
Date of creation: Aug 2010
Date of revision:
Handle: RePEc:usg:dp2010:2010-27
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  1. Herschel I. Grossman, 2001. "The Creation of Effective Property Rights," American Economic Review, American Economic Association, vol. 91(2), pages 347-352, May.
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  13. Linster, Bruce G, 1993. " Stackelberg Rent-Seeking," Public Choice, Springer, vol. 77(2), pages 307-21, October.
  14. Sylvain Chassang & Gerard Padro i Miquel, 2008. "Conflict and Deterrence under Strategic Risk," NBER Working Papers 13964, National Bureau of Economic Research, Inc.
  15. Denter, Philipp & Morgan, John & Sisak, Dana, 2011. ""Where Ignorance is Bliss, 'tis Folly to be Wise": Transparency in Contests," Economics Working Paper Series 1128, University of St. Gallen, School of Economics and Political Science.
  16. A. Muthoo, 2002. "A Model of the Origins of Basic Property Rights," Economics Discussion Papers 546, University of Essex, Department of Economics.
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  19. Gil S. Epstein & Shmuel Nitzan, 2000. "Strategic Restraint in Contests," CESifo Working Paper Series 271, CESifo Group Munich.
  20. 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.
  21. Hurley, Terrance M. & Shogren, Jason F., 1998. "Effort levels in a Cournot Nash contest with asymmetric information," Journal of Public Economics, Elsevier, vol. 69(2), pages 195-210, June.
  22. Umbeck, John, 1977. "The California gold rush: A study of emerging property rights," Explorations in Economic History, Elsevier, vol. 14(3), pages 197-226, July.
  23. de Meza, David & Gould, J R, 1992. "The Social Efficiency of Private Decisions to Enforce Property Rights," Journal of Political Economy, University of Chicago Press, vol. 100(3), pages 561-80, June.
  24. Stergios Skaperdas, 1996. "Contest success functions (*)," Economic Theory, Springer, vol. 7(2), pages 283-290.
  25. Hornbeck, Richard A., 2010. "Barbed Wire: Property Rights and Agricultural Development," Scholarly Articles 11185832, Harvard University Department of Economics.
  26. Magnus Hoffmann, 2010. "Enforcement of property rights in a barter economy," Social Choice and Welfare, Springer, vol. 34(2), pages 249-263, February.
  27. Catherine Hafer, 2006. "On the Origins of Property Rights: Conflict and Productionin the State of Nature," Review of Economic Studies, Oxford University Press, vol. 73(1), pages 119-143.
  28. Erica Field, 2007. "Entitled to Work: Urban Property Rights and Labor Supply in Peru," The Quarterly Journal of Economics, MIT Press, vol. 122(4), pages 1561-1602, November.
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