Property Enforcement as Organized Consent

Abstract

This article develops and tests a theory of the institutions that make property rights viable, ensuring their enforcement, mobilizing the collateral value of assets and promoting growth. In contrast to contractual rights, property rights are enforced in rem, being affected only with the consent of the right holder. This ensures enforcement but is costly when multiple, potentially colliding rights are held in the same asset. Different institutions reduce the cost of gathering consents to overcome this trade-off of enforcement benefits for consent costs: recording of deeds with title insurance, registration of rights and even a regimen of purely private transactions. All three provide functionally similar services, but their relative performance varies with the number of transactions, the risk of political opportunism and regulatory consistency. The analysis also shows the rationality of allowing competition in the preparation and support of private contracts while requiring territorial monopoly in recording and registration activities, this to ensure independence and protect third parties.

The law of impersonal transactions

“…The analysis in this paper is close to several theories of property-meaning, in rem-rights, such as, mainly, Merrill and Smith (2000), Kraakman (2000, 2002), and Arruñada (2003). It departs from part of the previous literature (e.g., Medina, 2003;Armour and Whincop, 2007) by focusing on the cases and solutions that are prevalent in the population of transactions instead of those most represented in the litigated sample.…”

“…However, Western law has taken more than ten centuries to apply contract rules when applying them efficiently requires supporting organizations. Governments have struggled for most of these ten centuries to organize land registries that could make their application to real property possible (Arruñada, 2003). Similarly, company registries, also invented within the Merchant Law, were adopted by most governments only in the 19 th century (Arruñada, 2009).…”

Mandatory accounting disclosure by small private companies

“…Even company registers which are less active in checking the legality of corporate transactions need to be reliable with respect to the date of filing and the storage of the accounts. To avoid potential damages to their parties, registers' independence is preserved by granting them a monopoly position, so that companies cannot choose a "register of convenience" (Arruñada, 2003). Understandably, this monopoly position often makes it harder to reduce the cost of filing the accounts and enhance the value of the information.…”

Market Institutions and Judicial Rulemaking

“…In parallel, publicity was increasingly required to produce rights enforceable in rem. Both of these constraints seem to diminish parties' freedom to produce rights in rem but in fact are essential for making some of them possible, reducing transaction costs in land and, in particular, making it possible to use land as collateral for credit (Arruñada, 2003), precisely the declared purpose of the reforms in this area.…”

“…Comparison among systems should aim to consider the weight of each ingredient and their interdependencies. In doing so, the analyses should ideally incorporate the institutional determinants that lie beyond the legal system and are frequently found in the nature of the political process (Backhaus, 1998;Wagner, 1998Wagner, , 1992Andonova, 2003), as well as wider economic factors relevant in specific fields of law, such as, in the field of property, the expected number of transactions, the risk of political opportunism and regulatory consistency (Arruñada, 2003).…”