New Horizons in Institutional and Evolutionary Economics series
Chapter 2: Attributes and the Theory of Economic Property Rights
In an imaginary world where every single actor has access to and can process all relevant information, and where transactions occur without friction such as search costs, there will be no interesting analysis of property rights. There will also be no interesting analysis of ﬁrms, money or entrepreneurship. It is enough to let the market open once, and then design one contract for eternity. This imaginary world does not resemble the world in which we live. But it is the world that is assumed in many economics textbooks and in general equilibrium theory. In the real world, people may lack relevant information and there are always limits to their processing of information. Because of these imperfections, people have to face co-ordination costs of various kinds. They search for information and they persuade exchange partners. They monitor performance and they enforce contracts. They cope with ignorance by relying on institutions that prescribe acceptable behaviour. And they structure their economic relationships through the creation, maintenance and transfer of property rights. This chapter is about the economic theory of property rights. Law courts enforce property rights over material resources and sometimes ideas according to what is explicit in contracts, and according to convention when contracts are incomplete (so-called ‘default contracts’). In economics, property rights are not about oﬃcially sanctioned ownership over material resources or ideas; they are about who controls what. The ‘what’ are not material resources or speciﬁc ideas, but rather attributes that people value, or attributes that contribute to...
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