A little while ago, I asked why private property rights have to be publicly provided. The question centers around what type of good private property rights are. I think I have an answer now.

If we consider a person looking to establish property rights, one way to go about it is to promise to respect the property rights of any one who respects that person’s property rights where the two property rights are defined by a formal process (i.e. a voluntary government). In this context, property rights have two important features. First, there are large transaction costs to establishing property rights due to communication costs between people and organization costs. Establishing property rights this way requires that a new participant let other people already in the agreement know that he is part of the agreement. Second, this market has very large network externalities. An agreement between two people to respect each others property rights is near worthless if there are a hundred other people. As more and more people join, the value of the agreement increases. This agreement also requires strong enforcement because there are strong incentives for covert defection (theft).

I think the reason that only a government can provide property rights is that ‘definer of property rights’ is almost the definition of government, but these two aspects of property rights are responsible for many of the general features of governments.

I am sure this question has been answered before, possibly by Institutional Economics, but I could not find an answer on the web, and I would like to formulate my own answer before I go off looking more in-depth.