Skip to main content
×
Home

Property as sequential exchange: the forgotten limits of private contract

  • BENITO ARRUÑADA (a1)
Abstract
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: overemphasize the initial allocation of property rights, while some form of recurrent allocation is often needed; pay scant attention to legal rights, although these determine enforceability and, therefore, economic value; and overestimate the power of unregulated private ordering, despite its inability to protect third parties. These three biases have been a misleading policy in many areas, including land titling and business firm formalization.

Copyright
Corresponding author
*Email: benito.arrunada@upf.edu
References
Hide All
Akerlof G. A. (1970), ‘The Market for “Lemons”: Quality Uncertainty and the Market Mechanism’, Quarterly Journal of Economics, 84 (3): 488500.
Alchian A. A. (1965), ‘Some Economics of Property Rights’, Il Politico, 30 (4): 816829.
Alemán M. (1604), Segunda parte de la vida de Guzmán de Alfarache, atalaya de la vida humana, Lisbon: Pedro Craasbeck.
Allen D. W. (2000), ‘Transaction Costs’, in Bouckaert B. and De Geest G. (eds.), The Encyclopedia of Law and Economics, vol. 1, Cheltenham, UK: Edward Elgar, pp. 893926.
ALTA, American Land Title Association (2015), ‘Comparative 2014 versus 2013 Family Company Summary’, http://ow.ly/OqSBV (accessed January 22, 2017).
Anderson T. L. and Hill P. J. (2004), The Not So Wild, Wild West: Property Rights on the Frontier, Stanford, CA: Stanford University Press.
Arruñada B. (2002), ‘A Transaction Cost View of Title Insurance and its Role in Different Legal Systems’, The Geneva Papers on Risk and Insurance, 27 (4): 582601.
Arruñada B. (2003), ‘Property Enforcement as Organized Consent’, Journal of Law, Economics, and Organization, 19 (2): 401444.
Arruñada B. (2007), ‘Pitfalls to Avoid when Measuring the Institutional Environment: Is “Doing Business” Damaging Business?’, Journal of Comparative Economics, 35 (4): 729747.
Arruñada B. (2010), Formalización de Empresas: Costes Frente a Eficiencia Institucional, Cizur Menor, Spain: Thomson Reuters.
Arruñada B. (2012), Institutional Foundations of Impersonal Exchange: Theory and Policy of Contractual Registries, Chicago: University of Chicago Press.
Arruñada B. (2015), ‘The Titling Role of Possession’, in Chang Y.-C. (ed.), The Law and Economics of Possession, Cambridge: Cambridge University Press, pp. 207233.
Arruñada B. (2016a), ‘Coase and the Departure from Property’, in Ménard C. and Bertrand E. (eds.), The Elgar Companion to Ronald H. Coase, Cheltenham, UK: Edward Elgar, pp. 305319.
Arruñada B. (2016b), ‘How Rome Enabled Impersonal Markets’, Explorations in Economic History, 61: 6884.
Arruñada B. (2017), ‘Blockchain's Struggle to Deliver Impersonal Exchange’, Pompeu Fabra University Economics and Business Working Paper Series 1549, https://ssrn.com/abstract=2903857.
Arruñada B. and Manzanares C. A. (2016), ‘The Tradeoff Between Ex Ante and Ex Post Transaction Costs: Evidence from Legal Opinions’, Berkeley Business Law Journal, 13 (1): 217255.
Arruñada B., and Garoupa N. (2005), ‘The Choice of Titling System in Land’, Journal of Law and Economics, 48 (2): 709727.
Awrey D. (2013), ‘Toward a Supply-Side Theory of Financial Innovation’, Journal of Comparative Economics, 41 (2): 401419.
Ayotte K. and Bolton P. (2011), ‘Optimal Property Rights in Financial Contracting’, Review of Financial Studies, 24 (10): 34013433.
Baird D. and Jackson T. (1984), ‘Information, Uncertainty, and the Transfer of Property’, Journal of Legal Studies, 13 (2): 299320.
de Balzac H. (1830), Gobseck, Paris: Mame-Delaunay.
Barzel Y. (1997), Economic Analysis of Property Rights, 2nd edn., Cambridge: Cambridge University Press.
Barzel Y. (2002), A Theory of the State: Economic Rights, Legal Rights, and the Scope of the State, Cambridge: Cambridge University Press.
Benson B. L. (1989), ‘The Spontaneous Evolution of Commercial Law’, Southern Economic Journal, 55 (3): 644661.
Bernstein L. (2001), ‘Private Commercial Law in the Cotton Industry: Creating Cooperation through Rules, Norms, and Institutions’, Michigan Law Review, 99 (7): 17241788.
Bank for International Settlements-International Organization of Securities Commissions (BIS-IOSCO) (2001), Recommendations for Securities Settlement Systems, Basel: BIS, http://www.bis.org/publ/cpss42.pdf.
Bruce J. W., Garcia-Bolivar O., Roth M., Knox A., and Schmidt J. (2007), ‘Land and Business Formalization for Legal Empowerment of the Poor’, Strategic Overview Paper, Washington, DC: US Agency for International Development.
Caballero R. J. and Simsek A. (2013), ‘Fire Sales in a Model of Complexity’, The Journal of Finance, 68 (6): 25492587.
Calabresi G. and Melamed A. D. (1972), ‘Property Rules, Liability Rules, and Inalienability: One View of the Cathedral’, Harvard Law Review, 85 (6): 10891128.
CEE, Commission of the European Communities (2004), Report from the Commission to the Council and the European Parliament on the Implementation of the European Charter for Small Enterprises, February 11, COM(2004) 64 final, Brussels: CEE.
Cheung S. N.S. (1970), ‘The Structure of a Contract and the Theory of a Non-Exclusive Resource’, Journal of Law and Economics, 13 (1): 4970.
CMN, Commissie Monitoring Notariaat (2003), Eindrapport Periode 1999–2003, The Hague: Ministerie van Justitie.
Coase R. H. (1960), ‘The Problem of Social Cost’, Journal of Law and Economics, 3 (1): 144.
Coase R. H. (1988), The Firm, the Market, and the Law, Chicago: University of Chicago Press.
Dari-Mattiacci G., Guerriero C., and Huang Z. (2016), ‘The Property-Contract Balance’, Journal of Institutional and Theoretical Economics, 172 (1): 4064.
De Mel S., McKenzie D., and Woodruff C. (2008), ‘Returns to Capital in Microenterprises: Evidence from a Field Experiment’, Quarterly Journal of Economics, 123 (4): 13291372.
De Mel S., McKenzie D., and Woodruff C. (2013), ‘The Demand for, and Consequences of, Formalization among Informal Firms in Sri Lanka’, American Economic Journal: Applied Economics, 5 (2): 122150.
De Soto H. (2000), The Mystery of Capital: Why Capitalism Triumphs in the West and Fails Everywhere Else, New York: Basic Books.
De Soto H., Ghersi E., Ghibellini M., and Instituto Libertad y Democracia (1986), El otro Sendero: La Revolución Informal, Lima: El Barranco.
Deininger K. and Feder G. (2009), ‘Land Registration, Governance, and Development: Evidence and Implications for Policy’, The World Bank Research Observer, 24 (2): 233266.
Eaton J. W. and Eaton D. J. (2007), The American Title Insurance Industry: How a Cartel Fleeces the American Consumer, New York: New York University Press.
Edwards J. and Ogilvie S. (2012a), ‘What Lessons for Economic Development Can We Draw from the Champagne Fairs?’, Explorations in Economic History, 49 (2): 131148.
Edwards J. and Ogilvie S. (2012b), ‘Contract Enforcement, Institutions, and Social Capital: The Maghribi Traders Reappraised’, Economic History Review, 65 (2): 421444.
Epstein R. A. (1985), Takings: Private Property and the Power of Eminent Domain, Cambridge, MA: Harvard University Press.
Ethereum (2016), ‘Ethereum Homestead Release: Blockchain and Platform’, https://www.ethereum.org/.
Freeman J. and Rossi J. (2012), ‘Agency Coordination in Shared Regulatory Space’, Harvard Law Review, 125 (5): 11311211.
Federal Trade Commission (FTC) (1999), ‘Annual Report to Congress: Fiscal Year 1998’, Washington, DC: Department of Justice Antitrust Division, http://ow.ly/POW9v.
Galiani S., Meléndez M., and Navajas C. (2015), ‘On the Effect of the Costs of Operating Formally: New Experimental Evidence’, National Bureau of Economic Research, Working Paper 21292, June 2015.
GAO, United States Government Accountability Office (2007), ‘Title Insurance: Actions Needed to Improve Oversight of the Title Industry and Better Protect Consumers’, US House of Representatives, April, GAO-07-401.
Greif A. (1989), ‘Reputation and Coalitions in Medieval Trade: Evidence on the Maghribi Traders’, Journal of Economic History, 49 (4): 857882.
Greif A. (1993), ‘Contract Enforceability and Economic Institutions in Early Trade: The Maghribi Traders’ Coalition’, American Economic Review, 83 (3): 525548.
Grossman S. J. and Hart O. (1986), ‘The Costs and Benefits of Ownership: A Theory of Lateral and Vertical Integration’, Journal of Political Economy, 94 (4): 691719.
Guidi F. (2015), ‘Our Reforms Will Put Italy on Track’, The Wall Street Journal, May 14.
Hansmann H. and Kraakman R. (2002), ‘Property, Contract, and Verification: The Numerus Clausus Problem and the Divisibility of Rights’, Journal of Legal Studies, 31 (2): S373–S420.
Hart O. (1995), Firms, Contracts, and Financial Structure, London: Oxford University Press.
Hart O. and Moore J. (1990), ‘Property Rights and the Nature of the Firm’, Journal of Political Economy, 98 (6): 11191158.
Hayes R. H. and Abernathy W. J. (1980), ‘Managing Our Way to Economic Decline’, Harvard Business Review, 85 (7–8): 138149.
Hermalin B. E., Katz A. W., and Craswell R. (2007), ‘Contract Law’, in Polinsky A. M. and Shavell S. (eds.), Handbook of Law and Economics, vol. 1. Amsterdam: Elsevier, pp. 3138.
IEG, Independent Evaluation Group (2008), Doing Business: Independent Evaluation, Washington, DC: World Bank, http://bit.ly/uJSQma (accessed June 15).
IFC-WB (2014), ‘Forthcoming Changes to the Doing Business Report’, Washington DC: IFC-WB, http://ow.ly/NHamh (accessed April 30).
Kadens E. (2012), ‘The Myth of the Customary Law Merchant’, Texas Law Review, 90 (5): 11531206.
Kaplan D. S., Piedra E., and Seira E. (2011), ‘Entry Regulation and Business Start-ups: Evidence from Mexico’, Journal of Public Economics, 95 (11–12): 15011515.
Korngold G. (2009), ‘Legal and Policy Choices in the Aftermath of the Subprime and Mortgage Financing Crisis’, South Carolina Law Review, 60 (3): 727748.
Kuijpers N., Noailly J., and Vollaard B. (2005), ‘Liberalisation of the Dutch Notary Profession: Reviewing its Scope and Impact’, CPB Discussion Paper 93, September, http://ow.ly/POVnn.
Lankhorst F. and Nelen H. (2004), ‘Professional Services and Organised Crime in the Netherlands’, Crime, Law and Social Change, 42 (2–3): 163188.
Lee B. A. and Smith H. (2012), ‘The Nature of Coasean Property’, International Review of Economics, 59 (2): 145155.
Levitin A. J. (2013), ‘The Paper Chase: Securitization, Foreclosure, and the Uncertainty of Mortgage Title’, Duke Law Journal, 63 (3): 637734.
Libecap G. D. and Lueck D. (2011), ‘The Demarcation of Land and the Role of Coordinating Property Institutions’, Journal of Political Economy, 119 (3): 426467.
Lipshutz N. R. (1994), The Regulatory Economics of Title Insurance, Westport: Praeger.
Loi Macron (2015), ‘Loi Pour la Croissance, l'activité et l’égalité des Chances économiques’, Assemblée Nationale, http://ow.ly/POVuN (accessed July 11).
Lomas N. (2015), ‘Everledger is Using Blockchain to Combat Fraud, Starting With Diamonds’, Tech Crunch, https://techcrunch.com/2015/06/29/everledger/ (accessed June 29).
Lueck D. and Miceli T. J. (2007), ‘Property Law’, in Polinsky A. M. and Shavell S. (eds.), Handbook of Law and Economics, vol. 1. Amsterdam: Elsevier, pp. 183257.
Macintyre I. (2008), ‘Dutch Notaries Accused of Money Laundering’, Radio Nederland Wereldomroep, July 15.
Masten S. E. and Prüfer J. (2014), ‘On the Evolution of Collective Enforcement Institutions: Communities and Courts’, Journal of Legal Studies, 43 (2): 359400.
Merrill T. W. (1998), ‘Property and the Right to Exclude’, Nebraska Law Review, 77 (4): 730755.
Merrill T. W. (2014), ‘Property and the Right to Exclude II’, Brigham-Kanner Property Rights Conference Journal, 3 (1): 126.
Merrill T. W. and Smith H. E. (2000), ‘Optimal Standardization in the Law of Property: The Numerus Clausus Principle’, Yale Law Journal, 110 (1): 170.
Merrill T. W. and Smith H. E. (2001), ‘What Happened to Property in Law and Economics?’, Yale Law Journal, 111 (2): 357398.
Merrill T. W. and Smith H. E. (2011), ‘Making Coasean Property More Coasean’, Journal of Law and Economics, 54 (4): S77–S104.
Milgrom P. R., North D. C., and Weingast B. R. (1990), ‘The Role of Institutions in the Revival of Trade: The Law Merchant, Private Judges, and the Champagne Fairs’, Economics and Politics, 2 (1): 123.
Monson A. (2012), From the Ptolemies to the Romans: Political and Economic Change in Egypt, Cambridge: Cambridge University Press.
Murtazashvili I. and Murtazashvili J. (2015), ‘Anarchy, Self-Governance, and Legal Titling’, Public Choice, 162 (3–4): 287305.
Murtazashvili I. and Murtazashvili J. (2016), ‘The Origins of Private Property Rights: States or Customary Organizations’, Journal of Institutional Economics, 12 (1): 105128.
Nahuis R. and Noailly J. (2005), ‘Competition and Quality in the Notary Profession’, CPB Discussion Paper 94, September, http://ow.ly/POVSa.
Noailly J. and Nahuis R. (2010), ‘Entry and Competition in the Dutch Notary Profession’, International Review of Law and Economics, 30 (2): 178185.
North D. C. (1981), Structure and Change in Economic History, New York: W. W. Norton.
North D. C. and Thomas R. P. (1973), The Rise of the Western World: A New Economic History, Cambridge: Cambridge University Press.
Nozick R. (1974), Anarchy, State, and Utopia, New York: Basic Books.
OECD (2003), From Red Tape to Smart Tape: Administrative Simplification in OECD Countries, Paris: OECD.
OECD (2006), Cutting Red Tape: National Strategies for Administrative Simplification, Paris: OECD.
Ogilvie S. and Carus A. W. (2014), ‘Institutions and Economic Growth in Historical Perspective’, in Aghion P. and Durlau S. (eds.), Handbook of Economic Growth, vol. 2, Oxford: North Holland, pp. 403513.
Olson M. (1993), ‘Dictatorship, Democracy, and Development’, American Political Science Review, 87 (3): 567576.
Ostrom E. (1990), Governing the Commons: The Evolution of Institutions for Collective Action, Cambridge: Cambridge University Press.
Owley J. (2015), ‘Keeping Track of Conservation’, Ecology Law Quarterly, 42 (1): 79137.
Preesman L. (2008), ‘Netherlands Tightens Measures Against Property Fraud’, IPE Real Estate, November 3.
Richman B. D. (2009), ‘Ethnic Networks, Extralegal Certainty, and Globalisation: Peering into the Diamond Industry’, in Gessner V. (ed.), Contractual Certainty in International Trade, Oxford: Hart Publishing, pp. 3149.
Roe M. J. (2013), ‘Clearing House Overconfidence’, California Law Review, 101 (6): 16411704.
Rothbard M. N. (1977), ‘Robert Nozick and the Immaculate Conception of the State’, Journal of Libertarian Studies, 1 (1): 4357.
Rudisuli R. and Schifter D. (2014), ‘The Brave New World of SEFs: How Broker-Dealers Can Protect Their Franchises’, McKinsey Working Papers on Corporate & Investment Banking 4, http://ow.ly/4n2s4A.
Schwartz A. and Scott R. E. (2011), ‘Rethinking the Laws of Good Faith Purchase’, Columbia Law Review, 111: 13321384.
Sgard J. (2015), ‘Global Economic Governance During the Middle Ages: The Jurisdiction of the Champagne Fairs’, International Review of Law and Economics, 42: 174184.
Simpson A. W. B. (1986), A History of the Land Law, 2nd rev. edn., Oxford: Clarendon Press.
Smith H. E. (2011), ‘Standardization in Property Law’, in Ayotte K. and Smith H. E. (eds.), Research Handbook on the Economics of Property Law, Cheltenham, UK and Northampton, MA, USA: Edward Elgar, pp. 148173.
Smith H. E. (2012), ‘Property as the Law of Things’, Harvard Law Review, 125 (7): 16911726.
Smith H. E. (2014), ‘The Thing about Exclusion’, The Brigham-Kanner Property Conference Journal, 3 (1): 95123.
Tapscott D. and Tapscott A. (2016), Blockchain Revolution: How the Technology Behind Bitcoin is Changing Money, Business, and the World, New York: Penguin.
Taylor P. and Papadimas L. (2015), ‘Typically Greek, Delayed Land Register is Never-Ending Epic’, Reuters, http://ow.ly/TIfIz (accessed October 18).
Umbeck J. (1977), ‘A Theory of Contract Choice and the California Gold Rush’, Journal of Law and Economics, 20 (2): 421437.
Verstappen L. C. A. (2008), ‘Word of Welcome: The Dutch Situation on Regulation of Notaries’, in Zeegers N. and Bröring H. (eds.), Professions under Pressure, The Hague: Boom Juridische Uitgevers, pp. 1124.
World Bank (2004–16), Doing Business, Washington, DC: World Bank.
ZERP, Centre of European Law and Politics (2007), Conveyancing Services Market (Study COMP/2006/D3/003, Final Report). Brussels: ZERP.
Recommend this journal

Email your librarian or administrator to recommend adding this journal to your organisation's collection.

Journal of Institutional Economics
  • ISSN: 1744-1374
  • EISSN: 1744-1382
  • URL: /core/journals/journal-of-institutional-economics
Please enter your name
Please enter a valid email address
Who would you like to send this to? *
×

Metrics

Full text views

Total number of HTML views: 5
Total number of PDF views: 65 *
Loading metrics...

Abstract views

Total abstract views: 310 *
Loading metrics...

* Views captured on Cambridge Core between 8th February 2017 - 24th November 2017. This data will be updated every 24 hours.