- The property-contract balance
- Number of pages
- University of Amsterdam
- Document type
- Working paper
- Interfacultary Research Institutes
Faculty of Economics and Business (FEB)
- Amsterdam Center for Law & Economics (ACLE)
Amsterdam School of Economics Research Institute (ASE-RI)
There is a fundamental trade-off between protecting property rights and enhancing reliance on contracts. It arises in any secondary market and in primary markets with intermediaries since in both cases a right can be transferred to a buyer without the original owner's consent. Thus, either the protection of the original owner's property or the enhancement of the buyer's reliance on contracts misallocate value depending on whether the buyer values the good more than the original owner or the other way around. Our model focuses on the most likely case of high-valuation buyers and produces two predictions. Protecting original owners is comparatively more appealing when more intermediaries are honest, since then most transactions are legal. Protecting the buyers is comparatively more appealing when law enforcement is more efficient, since then property is already safeguarded. This is consistent with instrumental variables estimates based on a novel dataset measuring the large variation in the rules concerning the acquisition of ownership over movable goods in 77 jurisdictions.
- June 25, 2013
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