Resale Markets and the Assignment of Property Rights.

The consumption of an indivisible good causes identity-dependent externalities to non-consumers. We analyse resale markets where the current owner designs the trading procedure, but cannot commit to future actions. We ask the following questions. (1) Does the identity of the initial owner matter for the determination of the final consumer? (2) Is the outcome always efficient? The major conclusion of our paper is that the irrelevance of the initial structure of property rights arises in resale processes even if there are transaction costs that hinder efficiency. This result complements the Coasian view where the irrelevance of the assignment of property rights is a consequence of efficiency. Copyright 1999 by The Review of Economic Studies Limited.