Benito Arruñada - Universitat Pompeu Fabra
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Property Rights in Sequential Exchange

Arruñada, Benito, Giorgio Zanarone, and Nuno M. Garoupa, “Property Rights in Sequential Exchange”, UPF Economics & Business Working Paper Series 1588, novembre 2017. 
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  We analyze the “sequential exchange” problem in which traders have incomplete information on earlier contracts. We show that under sequential exchange, it is in general not possible to simultaneously implement two key features of markets – specialization between asset ownership and control, and impersonal trade. In particular, we show that in contrast with the conventional wisdom in economics, strong property rights—enforceable against subsequent buyers—may be detrimental to impersonal trade. Finally, we provide conditions under which a mechanism that overcomes the tradeoff between specialization and impersonal trade exists, and we characterize such mechanism. Our results provide an efficiency rationale for how property rights are enforced in business, company and real estate transactions, and for the ubiquitousness of “formalization” institutions that the literature has narrowly seen as entry barriers.