Property rights, trust, and economic performance

This article develops a model of how property rights can emerge in the absence of political institutions of enforcement. It analyzes an alternative security mechanism in the community. Individual agents commit themselves to protect property rights. Trust is a cognitive state that one will not be exploited by another. The model presents a behavioral economic framework, in which work effort varies. It is shown that trust is a crucial factor for producing high economic outcomes. The establishment of trust depends on shared mental models. Two equilibrium solutions can exist: one, with a full protection of property rights and a high level of trust, and another, with no protection of property rights and a low level of trust.