The standard neoclassical model of economics is incapable of explaining why one form of organization arises over another. It is a model where transaction costs are implicitly assumed to not exist; however, transaction costs are here defined as the costs of strengthening a given distribution of economic property rights, and they always exist. Economic Analysis of Property Rights is a study of how individuals organise resources to maximise the value of their economic rights over these resources. It offers a unified theoretical structure to deal with exchange, rights formation, and organisation that traditional economic theory often ignores. It explains how transaction costs can be reduced through reorganization and, in the end, how the distribution of property rights that exists is the one that maximizes wealth net of these transaction costs. This necessary hypothesis explains much of the puzzling organizations and institutions that exist now and have existed in the past.

‘This new Third Edition of Economic Analysis of Property Rights carries one of the greatest classics of economics into the twenty-first century. Starting with unusually rigorous definitions of transaction costs, property rights, and resources, Barzel and Allen lay out a fruitful framework for analyzing institutions and employ it to generate a stunning array of insights into a wide variety of real-world situations. This book is essential reading for economists, legal scholars, policymakers, and anyone else who wants a fresh take on the way institutions work.’

Henry E. Smith - Harvard Law School

‘As is fitting for a Third Edition of Economic Analysis of Property Rights by Yoram Barzel and Douglas W. Allen, there is a lot to learn in this new volume. The authors have been leaders in the New Institutional Economics. They examine property rights, transaction costs, information costs, organizations, and institutions. They describe how these arrangements coordinate and direct economic behavior and impact human welfare. Global economic performance depends more upon property rights and related structures of production than upon demographic, intellectual, and natural resource endowments. The topics addressed in this new edition are critical for understanding why.’

Gary D. Libecap - University of California, Santa Barbara, and National Bureau of Economic Research