Altenative markets, rethinking property rights. An application of the Second Welfare Theorem


#1

In the book “Radical Markets” by Eric Posner and Glen Weyl, property rights are explored. One conclusion of the authors is that property rights can sometimes become a constraint in the efficiency of markets. In an interesting proposal, Posner and Weyl come up with a system in which you are able to maintain your property rights but are forced to declare publicly how much it is worth to you and pay a proportional tax linked to the worth of the goods you own. You would then, hypothetically, upload those amounts to an app, and anybody would be able to offer a larger amount than what you declared and buy the good form you. Theoretically this would lead to a much more efficient allocation of resources than the equilibrium held through traditional property rights. I interpret this idea as a Walrasian equilibrium where the endowment is composed by property rights, being able to redistribute the property rights can be interpreted as a use of the second welfare theorem, which may lead to a “better” equilibrium.

Dr. Pancs has declared some reservations of this alternative model in his review of said book. You can find the link here: http://focoeconomico.org/2018/04/23/radical-markets-una-resena-por-romans-pancs/

I personally used this review as food for thought. What do you think about this? Do you think this alternative can be explained using a Walrasian model? Let me know.

José Simón Carreño


#2

It may be possible to explain a Walrasian model, however I would only question the fact that even if you don’t want to trade further and are satisfied with your market position, someone can come and force you to trade by offering more for your property rights. How do you think an equilibrium could be reached under these assumptions? The idea is very interesting though, I´m just trying to come up with something that might help understand how an equilibrium could be reached.

Thanks and let me know if you have any thoughts.

Armando


#3

I believe the answer lies in the fact that an equilibrium is bound to happen because everybody reveals their willingness to pay. In this sense every agent would spend their income on the items that give them the most utility. The concept of monotonicity is useful to understand how the equilibrium is reached. But if we consider a dynamic game, I do agree with you. Property rights might switch hands everytime you are required to upload your willingness to pay on the app, but this would just result in a new equilibrium every period, maintaining efficency throughout the game.