Winning Proposal to the Pierce Scholar's Fund: 2009 Competition

Project Title: Parsing the Bundle: An examination into the components of property rights and their relationship to economic growth

Faculty Sponsor and PI: Robert J. Franzese, Jr.

Ph.D. Student: Valenta Kabo

Project Description

"Property rights" is one of the most fundamental concepts in political economy, political science and economics, and especially in the political economy of development. The laws that governments enact to protect property rights shape incentives for various types of economic behavior of both individuals and institutions.

However, there is an incongruity between theories about the economic effect of property rights, specifically in the form of land legislation, and the empirical outcomes in countries around the world. Several scholars state that a clearly defined system of property rights is an essential component of economic growth. This belief arises from the conception of property rights as institutions, or sets of rules that resolve conflict over the competition for scare resources, and provide for predictable behavior (Besley, 1998). However, the empirical results do not align with theoretical predictions in that implementation of property rights does not always result in security, increased productivity, investment or economic growth (Fandino, 1993; Place and Migot-Adholla 1998). An example of this incongruity between theory and empirical observations is found in studies of land titling laws. Significantly more than any other types of property laws, land titling laws have been the object of empirical study and recent debate.

Land titling laws are those which give title to land or create land registration systems, and are intended to resolve problems of market inefficiencies. By providing information and assurance to 3rd parties, land titling laws are said stimulate economic growth and development by facilitating market operations revolving around land. Typically, such operations include obtaining credit, buying, selling, leasing of land, investments in infrastructure on the land, leading to increased productivity, and avoiding the costs of disputes over boundaries and invasions (Fandino, 1993; Deininger and Chamorro 2002). In adherence to this belief, many countries have begun land privatization or titling programs (Fandino, 1993). The US Agency for International Development has supported programs in El Salvador, Guyana Honduras, Costa Rica, Jamaica, Peru, and Ecuador (Hendrix, 1995). In addition, the World Bank has been the sponsor of several land titling programs in Venezuela, Ecuador, Guatemala, El Salvador, Nicaragua, Paraguay, and Bolivia. However, the results have been inconclusive. Studies of individual countries’ land titling programs have found that changes in land titling legislation do not always yield economic growth, or the expected changes in economic behavior. For example, on Brazil’s frontier, land titling did increase investment (Alston, Libecap and Schneider, 1996). Similarly, in Thailand, land titling did increase investment and productivity, particularly because of access to credit (Feder and Feeny, 1991). However, in Cameroon, land titling increased only a sense of security, not investment in the property (Firmin-Sellers and Sellers, 1999). What explains this variation?

By unpacking what is traditionally conceived as the "property rights bundle", leverage can be gained in understanding precisely how property rights impact economic outcomes, and why countries have this variation. Although property rights are generally conceived as a single entity, they are in fact multiple rights protecting a single entity. Thus, I argue first, that not all aspects of the property rights bundle are universally necessary and equally important for economic growth. Second, different property rights are necessary for the different economic functions a state wishes to perform.

In order to begin the project of addressing these arguments, better data must be compiled. This project will develop a dataset consisting of property laws from a sample of at least 60 countries (both developed and developing economies). First, the laws will be read and coded with respect to whether they have one or more of several elements of the property-rights bundle. Thus, the dataset will contain information on the ownership laws, transferability laws, use laws and land titling laws. After coding the laws, they will be scaled according to the degree of restrictiveness on autonomy over property. Second, the data set will contain information on the legal systems from which the laws originate. Such information will include the manner of judicial review, and the taxonomy of the legal system. Third, the dataset will contain information on institutional forms that have an impact on the way that such laws are written and enacted, such as the constitutional forms of the country, and the manner of electing legislators. Finally, information on the economies of the countries will also be included. This dataset will therefore include growth rates, predominate economic use of land, interest rates (insofar as they may impact the price of land), and the size of the land market. The purpose of this data set is to enable quantitative analysis on precisely which components of the property rights bundle impact economic growth and economic behaviors.

A pilot study of the data set was completed in 2008 with funding from the Olin Center for Law and Economics at the University of Michigan law school. Refining of the methodology for collecting the data and further data collection is occurring during the winter 2009 semester. Support is requested for the purpose of completing the data set and beginning data analysis.

The intellectual merit of this project lies in the fact that it offers to explain why empirical results differ from economic theories of property rights in a variety of country contexts. In addition, the intellectual merit of this project lies in its methodological approach. It will be the first project to create a dataset of land laws that can be used for quantitative analysis. Such a dataset will be useful not only for the present research but for other research projects that wish to explore relationships between property rights, land, legislation, and economic and political outcomes.