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Market Correlation and Property Rights

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  • Shin-Hwan Chiang
  • Xiang Li

Abstract

This paper examines the origins of property rights in the presence of production uncertainty. Since stealing others' possessions is permitted under anarchy, the winner is able to enjoy the lion's share of total outputs produced by all parties, and this generates a diversification effect, since the random outputs are polled together. Taking this effect into account, we characterize the subgame-perfect equilibrium for our two-stage game. Specifically, the emergence of property rights is shown to depend on players' incentives to fight, variances, and market correlations. The model predicts that property rights are more likely to emerge when market correlations increase.

Suggested Citation

  • Shin-Hwan Chiang & Xiang Li, 2010. "Market Correlation and Property Rights," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 166(3), pages 426-438, September.
    • Handle: RePEc:mhr:jinste:urn:sici:0932-4569(201009)166:3_426:mcapr_2.0.tx_2-f
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    References listed on IDEAS

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    1. R. H. Coase, 2013. "The Problem of Social Cost," Journal of Law and Economics, University of Chicago Press, vol. 56(4), pages 837-877.
    2. Esteban, Joan & Ray, Debraj, 1999. "Conflict and Distribution," Journal of Economic Theory, Elsevier, vol. 87(2), pages 379-415, August.
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    Cited by:

    1. Ragoobar, Tricia & Whalley, Jason & Harle, David, 2011. "Public and private intervention for next-generation access deployment: Possibilities for three European countries," Telecommunications Policy, Elsevier, vol. 35(9), pages 827-841.

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    More about this item

    JEL classification:

    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

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