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Institutional Foundations of Impersonal Exchange

Theory and Policy of Contractual Registries

Governments and development agencies spend considerable resources building property and company registries to protect property rights. When these efforts succeed, owners feel secure enough to invest in their property and banks are able use it as collateral for credit. Similarly, firms prosper when entrepreneurs can transform their firms into legal entities and thus contract more safely. Unfortunately, developing registries is harder than it may seem to observers, especially in developed countries, where registries are often taken for granted. As a result, policies in this area usually disappoint.  

Benito Arruñada aims to avoid such failures by deepening our understanding of both the value of registries and the organizational requirements for constructing them. Presenting a theory of how registries strengthen property rights and reduce transaction costs, he analyzes the major trade-offs and proposes principles for successfully building registries in countries at different stages of development. Arruñada focuses on land and company registries, explaining the difficulties they face, including current challenges like the subprime mortgage crisis in the United States and the dubious efforts made in developing countries toward universal land titling. Broadening the account, he extends his analytical framework to other registries, including intellectual property and organized exchanges of financial derivatives. With its nuanced presentation of the theoretical and practical implications, Institutional Foundations of Impersonal Exchange significantly expands our understanding of how public registries facilitate economic growth.

320 pages | 10 line drawings, 2 tables | 6 x 9 | © 2012

Economics and Business: Economics--International and Comparative

Law and Legal Studies: Law and Economics

Political Science: Comparative Politics


"This is law and economics at its best. Benito Arruñada’s brilliant book greatly advances our understanding of how law and legal institutions affect the possibilities for trade. Very unusually, it also demonstrates how the needs of transacting parties and the interests of those who serve them profoundly shape a wide range of institutions from contract enforcement to title registries."

Henry E. Smith, Harvard Law School

"With Institutional Foundations of Impersonal Exchange, Benito Arruñada fills an important gap in the literature on institutions and economic growth. He recognizes the importance of impersonal exchange for growth, but also understands there are trade-offs in developing the institutional framework for such exchange. This book is a ’must read’ for anyone who wants to understand the full range of rules governing property rights protection, enforcement, and exchange."

P.J. Hill, Wheaton College

"Benito Arruñada has produced a masterly analysis informed by sound economic and legal theory. It deals with a very real-world problem: the issue of how best to provide security to participants in transactions in impersonal contexts. His focus on impersonality clarifies the fundamentals of a long-running debate in the world of development over the priority to be given to formalization of land rights. Registration, his analysis suggests, is properly seen as a response to the needs of impersonal markets in land, not a magic wand for creating them."

John W. Bruce, Land and Development Solutions International, Inc.

Table of Contents

List of Illustrations

Misguided Property Titling and Business Formalization Policies
How Public Registries Reduce the Transaction Costs of Impersonal Trade
Organization of the Book
Methodology and Exposition: Approach, Assumptions, and Caveats

One / The Role of Verifiable Contract Publicity in Impersonal Trade
Impersonal Exchange Requires Rights on Assets, Not Merely on Persons
What Do Rights on Assets Mean? Difference between Rights on Assets and Rights on Persons
Differences between the Economic and Legal Views on Enforcement—Or Why Economics Chose to Ignore Legal Property
Specialization and Transactions Require Multiple Rights on Each Asset, Hindering Impersonal Trade
Generalizing the Analysis
Prevalence and Varying Contractual Difficulty of Sequential Exchange
Information Problem of Sequential Exchange and Solving It by Selective Application of Property and Contract Rules
Conclusion and Next Steps

Two / Institutions for Facilitating Property Transactions
Private Titling: Privacy of Claims as the Starting Point
Publicity of Claims
Registration of Rights
Land Titling Systems Compared: Promise and Reality
Organizational Requirements: Registries’ Monopoly as a Safeguard of Their Independence

Three / Institutions for Facilitating Business Transactions
Prevalence of “Contract Rules” in Business Exchange
Requirements for Applying Contract Rules: The Rationale of Formal Publicity
Difficulties Involved in Organizing Company Registries: Independence and Collective Action
Lessons from Four Historical Cases
Registration and the Theory of the Firm

Four / Strategic Issues for Creating Contractual Registries
Understanding Conflict between Local and Wider Legal Orders
Following a Logical Sequence of Reform
Identifying the Key Attributes and Users of Registry Services
Evidence on the Effects of Property Titling
Evidence on the Effects of Business Formalization

Five / The Choice of Title and Registration Systems
Private versus Public Titling
Voluntary versus Universal Titling
Recordation of Deeds versus Registration of Rights
Choice of Business Formalization System

Six / Conveyancing and Documentary Formalization
The Palliative Nature of Documentary Formalization
Role of Conveyancers in Each Titling System
Market-Driven Changes in the Conveyancing Industry
Regulation of Conveyancing Services in the Twenty-First Century
Role of Title and Credit Insurance

Seven / Organizational Challenges
Producing Useful Information for Decisions on Formalization Systems
Integrating Contractual and Administrative Registries
Exploiting Technical Change
Structuring Incentives for Effective Public Registries
Reconsidering Self-Interest

Concluding Remarks
Challenge of Public Registries


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