A model of the origins of basic property rights

This paper studies the origins of one of the most basic of property rights, namely, the right of an individual or an organization to the fruits of its labour. My objective is to address the questions of why, when and how this property right can emerge and be made secure. I develop a model of the strategic interaction between two players in the state-of-nature, which is an environment characterized by the absence of any laws and institutions (including property rights and the state). My analysis explores, in particular, the roles of the players' fighting and productive skills on the emergence and security (or otherwise) of this property right.     

Strategic Bargaining and Competitive Bidding in a Dynamic Market Equilibrium

This paper extends the bargaining and matching literature, such as Rubinstein and Wolinsky (1985), by considering a new matching process. We assume that a central information agency exists, such as real estate agencies in the housing market and employment agencies (or newspapers) in the labour market, which puts traders into direct contact with each other. With heterogeneity of trader preferences, equilibrium trade is characterized by existing traders on each side of the market trying to match with the flow of new traders on the other side (since existing traders have already sampled and rejected each other). Two procedures of trade co-exist, namely a strategic bilateral bargaining process and a competitive bidding process, depending on the number of potential matches a new trader obtains. We characterize the unique symmetric Markov perfect equilibrium to this stochastic trading game.     

Sequential bargaining and competition

Summary This paper studies a sequential bargaining model of a decentralised market. A main objective is to explore the conditions under which the unique subgame perfect equilibrium outcome of the market game approximates the Walrasian outcome of the market. The three main messages that emerge from our results are as follows. First, contrary to conventional wisdom, frictionless markets need not be Walrasian. Second, the relative magnitudes of frictions can have a profound impact on the market outcome even in the limit as the absolute magnitudes of the frictions become negligible. And third, the relative magnitudes of certain types of frictions may have to be significantly large in order for markets to be Walrasian, reflecting that certain types of frictions are needed in the market in order to induce the Walrasian outcome.This paper is based on a chapter of my Ph.D. thesis. I would like to thank Ken Binmore, David Canning, Partha Dasgupta and Frank Hahn for their helpful comments. I owe special thanks to Ariel Rubinstein for his comments, remarks and encouragement. The comments and suggestions of an anonymous referee have significantly improved the exposition at several places.     

A note on bargaining over a finite number of feasible agreements

Summary In this note we show that theuniqueness of the subgame perfect equilibrium of Rubinstein's (1982) bargaining theory does not hold if the number of feasible agreements isfinite. It will be shown thatany Pareto-efficient agreement (belonging to thefinite set of feasible agreements) can be supported as a subgame perfect equilibrium of the Rubinstein alternating-offers bargaining game, provided the length of a single bargaining period is sufficiently small.     

Equilibrium Partner Switching in a Bargaining Model With Asymmetric Information

We study a model in which the seller of an indivisible object faces two potential buyers and makes an offer to either of them in each period. We find that the seller's ability to extract surplus from them depends crucially on the value of the cost of switching from one buyer to the next. If the seller is pessimistic about the buyers' valuations and there is a switching cost, however small, then the market is a natural bilateral monopoly; the second buyer is never called on. If the switching cost is zero, or if the seller is optimistic, then switching, and possibly recall of the original buyer, may occur.     

Seniority and Incumbency in Legislatures

In this article, we elaborate on a strategic view of institutional features. Our focus is on seniority, though we note that this general approach may also be deployed to understand other aspects of institutional arrangements. We have taken the initial game‐theoretic model of seniority of McKelvey and Riezman ( 1992 ), simplified it in order to characterize its fundamental implications, generalized these results in several ways, and extended the model by deriving additional implications. The broad messages of our article, articulated by McKelvey and Riezman as well, are two. First, the endogenous choice of institutional features like seniority by self‐governing groups is strategic. While the fine‐grained ways of doing things in an institutional context surely serve internal functional objectives, these are not the only objectives. Agents making choices on how to govern themselves have private motivations – in the case of elected politicians they often revolve around re‐election. This leads to our second broad message. The institutions through which self‐governing groups conduct their business do not exist in a vacuum. They are embedded in a broader context. Those offering functional explanations for various institutional features overlook this. Particular institutional arrangements have effects outside the governance institution itself. These effects, in principle, could be accidental by‐products. Our strategic approach, however, argues that they may well be the primary reasons for a practice being instituted.     

A note on repeated-offers bargaining with one-sided incomplete information

Summary This note analyzes a modified version of the standard repeated-offers bargaining game with one-sided incomplete information studied in Fudenberg, Levine and Tirole (1985), Gul, Sonnenschein and Wilson (1986) and Ausubel and Deneckere (1989). The modification, which is introduced in the extensive form, is that the (uninformed) seller can choose to withdraw her offer immediately after the (informed) buyer accepts it. This modification is important because it removes the (implicit) commitment assumption built into the standard model that the seller is committed not to withdraw her price offer. A main result obtained is, that whether or not there is a gap between the seller's valuation and the lowest possible buyer's valuation, any seller payoff between zero and the static monopoly profit can be supported by sequential equilibria. Thus, even in the gap case there exist equilibria that completely reverse the Coase conjecture.I thank Ian Jewitt and an anonymous referee for their helpful advice and comments.