# A model of insecure property rights

To illustrate the main ideas, consider the following model, which is similar to that developed by Skaperdas and Syropoulos (1996). There are two individuals, 1 and 2, and two scarce inputs into production: labour (L) and land (T). The production function for each individual is:

where T is the amount of land that individual i employs, and *L _{t}* is the amount of labour that

*i*employs, and 0 <

*a <*1 is a productivity parameter. Suppose that individuals each begin with

*R*units of labour, which is secure.

_{t}## Secure property rights to land

If property rights over land are fully secure, then labour is fully employed in productive activities, and each individual's production is:

where 0 < *a <* 1. The Pareto-optimal allocations of land and labour solve:

subject to:

and the aggregate resource constraints T_{1} + T_{2} = *T* and R_{1} + R_{2} = R. The solution is the set of points where:

*Figure 7.4.1* The contract curve

This is the horizontal line of the Edgeworth Box, as shown in Figure 7.4.1.

Aggregate production for this efficiently organised economy satisfies: