Augmenting the Value of Ownership by Protecting it Only Partially: The 'Market-Overt' Rule Revisited

Medina, Barak

doi:10.2139/ssrn.368280

Cited by 2 publications

(6 citation statements)

References 32 publications

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“…A few recent papers have developed economic models of property rights in sequential exchange environments (Medina, 2003;Ayotte and Bolton, 2011;and Dari-Mattiacci et al, 2016). As explained below, these papers importantly differ from ours in terms of analytical results, applications, and scope.…”

Section: Contribution To the Literaturementioning

confidence: 87%

“…As explained below, these papers importantly differ from ours in terms of analytical results, applications, and scope. Both Medina (2003) and Dari-Mattiacci et al (2016) study the sale of stolen goods to a good faith purchaser. Medina (2003) shows that if the owner is entitled to restitution, the buyer's willingness to pay decreases, while his incentive to investigate the goods' origin may increase.…”

Section: Contribution To the Literaturementioning

confidence: 99%

“…Both Medina (2003) and Dari-Mattiacci et al (2016) study the sale of stolen goods to a good faith purchaser. Medina (2003) shows that if the owner is entitled to restitution, the buyer's willingness to pay decreases, while his incentive to investigate the goods' origin may increase. Thus, depending on which effect dominates, it may be more efficient to allow the buyer to keep the goods.…”

Section: Contribution To the Literaturementioning

confidence: 99%

“…All else equal, this is more likely to be the case the higher the gains from specialization of asset ownership and control, and the lower the agent's potential opportunistim. An example of how this rule is applied in practice is the law of good faith purchase (e.g., Medina, 2003;Arruñada 2010;Schwartz and Scott 2011).…”

Section: Introductionmentioning

confidence: 99%

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Property Rights in Sequential Exchange

Arruñada

Zanarone

Garoupa

2018

The Journal of Law, Economics, and Organization

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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.

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Section: Contribution To the Literaturementioning

confidence: 87%

Section: Contribution To the Literaturementioning

confidence: 99%

Section: Contribution To the Literaturementioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

See 2 more Smart Citations

Property Rights in Sequential Exchange

Arruñada

Zanarone

Garoupa

2018

The Journal of Law, Economics, and Organization

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“…Even if a few studies (Ben-Shahar, 1995;Medina, 2003;Schwartz and Scott, 2011) have built on the least cost avoidance principle to compare different rules on the basis of owner's prevention and buyer's information costs, no previous paper has explained the observed variation in the rules concerning good-faith purchase through the fundamental characteristics of society. From this perspective, the present paper offers three contributions.…”

Section: Introductionmentioning

confidence: 99%

The Good-Faith Purchaser: Markets, Culture, and the Legal System

2012

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A key institutional setting is the set of rules balancing the use of coercion to the one of markets for transferring property rights. Even if all legal systems forbid theft ex ante, different societies provide different ex post solutions to the conflict arising between the original owner and the good-faith buyer of a good with defective title. These rules range from the full protection of the original owner's property right to the full protection of the buyer's reliance on contract. Looking at a world in which only intermediaries can transfer goods from original owners to buyers by using either coercion or markets, we prove that: 1. Society should accept coercion, if buyers value the good more than original owners, and minimize it, otherwise; 2. In the first of the two cases, provided that the preference polarization is not too wide, there are separating equilibria in which moral intermediaries-i.e., those for whom coercion entails a sufficiently high moral cost-signal their proper title by charging higher prices; 3. In the second of the two cases, the market shrinks because moral intermediaries refrain from coercion. Thus, mature economies-i.e., those in which original owners tend to value goods more than buyers-will move toward buyer protection, the higher is the share of moral intermediaries (lower is the quality of the legal system) because of the lower extent of coercion (lower impact of public enforcement). Estimates, based on a panel of 148 countries over the 1981-2011 period, are consistent with this prediction.

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Augmenting the Value of Ownership by Protecting it Only Partially: The 'Market-Overt' Rule Revisited

Cited by 2 publications

References 32 publications

Property Rights in Sequential Exchange

Property Rights in Sequential Exchange

The Good-Faith Purchaser: Markets, Culture, and the Legal System

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