Coase and the departure from property

Abstract

In "The Problem of Social Cost," Coase (1960) used a simplified conception of property rights as the outcome of mere contracting in independent exchanges. This conception has been suitable for successfully analyzing many important issues, including that of externalities related to the use of assets and public goods. However, its implicit assumption that exchange in property rights does not affect future transaction costs provides an inadequate basis for understanding property institutions and has caused confusion on the efficacy of private ordering and the role of the state and legal institutions. It has thus limited the scope of most of the economics of so-called property rights to analyses of political interactions and contract rights in personal exchanges. In the real world, property is defined by interaction between multiple exchanges which cause exchange-related non-contractible externalities among market participants. When such exchange-related externalities are considered, property becomes inherently linked to public and legal interventions, which are indispensable to reach true property-that is, in rem-enforcement and truly impersonal-asset-based-exchange.

How Rome enabled impersonal markets

“…For example, if judges enforce secret mortgages on land, buyers of any parcel of land will be reluctant to buy, which will reduce the value of all parcels. Furthermore, given the difficulties inherent in safeguarding the interests of third parties, containing such externalities is impossible without the support of public-ordering institutions (Arruñada 2016). …”

Reconsidering the Dual Nature of Property Rights: Personal Property and Capital in the Law and Economics of Property Rights

“…On the one hand, by explicitly acknowledging the dual nature of property rights, the new information theory challenges the established understanding of property rights in law and economics and Coasean property rights theory. The authors convincingly show that the way in which Coasean and post-Coasean law and economics and property rights theory treat and define property rights (as rights in personam, and therefore as a bundle of interpersonal use rights) is not only analytically incorrect from the point of view of property law, but also logically inconsistent with the main message of Coasean law and economics and with the Coase theorem itself (Lee and Smith, 2012;Smith, 2001b, 2011;Smith, 2012a): precisely because the nature and form of legal institutions depend on the level of transaction cost, a correct Coasean analysis should reach the conclusion that, in a world of positive transaction costs, it is optimal (from a social welfare point of view) to define property rights as impersonal rights in rem, consistent with the classical approach (Arruñada, 2003(Arruñada, , 2012a(Arruñada, , 2016Lee and Smith, 2012;Merrill & Smith, 2001bSmith, 2012a).…”

1688 and all that: Property rights, the Glorious Revolution and the rise of British capitalism

“…The potential role of property as collateral is neglected in much of 'the economics of property rights' (Alchian, 1965;Barzel, 1989), which often focuses on the matter of de facto control, rather than on the importance of de jure legal title, granted by a juridical authority (Arruñada, 2016;Cole and Grossman, 2002, Hodgson, 2015a, 2015b, 2015c. North (1981North ( : 17, 1994 himself 7 Feudal restrictions on landed property existed in pre-1789 France.…”