Benito Arruñada

Coase and the Departure from Property

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.

Religion and the European Union

We review a recent literature on cultural differences across euro member states. We point out that this literature fails to address cultural differences between Protestants and Catholics, which are likely a major underlying reason for cross-country differences. We argue that confessional culture explains why Catholic countries tend to have weaker institutions but are more open to economic and political integration. EU policies after the economic crisis looked clumsy and failed to address all concerns, but were viable, caused only a manageable amount of serious backlash and tied in well with Europe’s cultural diversity, also providing scope for learning and adaption.

Blockchain: The Birth of Decentralized Governance

By allowing networks to split, decentralized blockchain platforms protect members against hold up, but hinder coordination, given that adaptation decisions are ultimately decentralized. The current solutions to improve coordination, based on “premining” cryptocoins, taxing members and incentivizing developers, are insufficient. For blockchain to fulfill its promise and outcompete centralized firms, it needs to develop new forms of “soft” decentralized governance (anarchic, aristocratic, democratic, and autocratic) that allow networks to avoid bad equilibria.

Property rights in sequential exchange

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.