Enforcement of Property Rights in a Barter Economy

Abstract

If property rights to consumption goods are insecure, the incentives to trade in a barter economy are reshaped. In a pure exchange economy, we examine the case where two contestable consumption goods are vital to two agents and initial endowments follow a binary distribution. In line with the existing literature, we examine in a two-stage game how the equilibrium security of claims to property is determined. We find that, in equilibrium, two different regimes emerge, depending on the exogenous preference and appropriationeffectiveness parameters: Peaceful coexistence and trade and appropriation,with the former regime strictly Pareto-dominating the latter regime