Production, Appropriation and the Dynamic Emergence of Property Rights
Abstract: This paper analyzes the dynamic emergence of property rights in a decentralized economy devoid of an exogenous enforcement mechanism. Imperfection in property rights enforcement gives rise to appropriative activities, which take away resources from productive activities, and thus, hampers the performance of the economy. Therefore, agents in the economy strategically invest in definition and enforcement of property rights to limit the detrimental appropriative competitions for the use of resources. Using a differential game framework, this paper obtains the open-loop and the Markov-perfect equilibrium level of property rights enforcement in an economy. The exact level depends on the economy's characteristics, such as fractionalization, value of affected assets, productivity of the tools employed to build the institution of property rights, future discount rate, as well as the economy's norms, culture and traditions.