Two Remarks on the Property-Rights Literature.
The authors first point out that the recent property-rights literature is based on three assumptions: (1) that contracts are always subject to renegotiation; (2) that the exercise of a property right confers a private benefit and (3) that parties are risk-neutral. Building on Hart-Moore (1999), they provide conditions under which an optimal contract consists of nothing more than an assignment of property rights. The authors also examine the robustness of some of the literature's standard predictions about asset ownership to the introduction of mechanisms for eliciting parties' ex post willingness to pay for the assets (such as options or financial markets). To illustrate the issue, they revisit the Hart-Moore (1990) proposition that joint ownership is suboptimal, and argue that ownership by a single party is dominated by joint ownership with put options. Copyright 1999 by The Review of Economic Studies Limited.