Full Citation
Title: Development Derailed: Uncertain Property Rights and Asset-Specific Investment
Citation Type: Miscellaneous
Publication Year: 2019
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Abstract: Theory predicts that property rights coevolve with value and investment, making empirical identification of causal effects difficult. We identify how uncertain property rights – exogenously generated by railroad land grants – delayed and deterred investment and economic development on the Western frontier. We explore the impact of the Northern Pacific’s land grant in Montana because it encompassed nearly 50 percent of the state while the delayed construction of the NP and a large shift in political sentiment in the interim created significant uncertainty to title for the land grant for at least 15 years. We examine how this uncertainty to title impacted irrigation investment because it exhibits high asset specificity, was central to economic development on the frontier, and has a readily observable date of initial investment thanks to western water law. Using granular spatial data on land patents and water rights, we exploit the random variation of the checkerboarded land grant in a difference-in-differences as well as the arbitrary 100-mile width of the grant in a spatial discontinuity to overcome the empirical challenge that property rights and investment are often endogenously determined. We find that the uncertainty delayed (4.2 years) and deterred (28 percent lower) irrigation development in Montana. We estimate this reduced total farm value by up to 27 percent in Montana, which in annualized terms, accounted for nearly 6 percent of Montana’s total income in 1930.
Url: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3201434
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Authors: Alston, Eric; Smith, Steven
Publisher: University of Colorado Boulder
Data Collections: IPUMS NHGIS
Topics: Land Use/Urban Organization
Countries: United States