Renewal: Lowering Transaction Costs through Institutional Arrangements: The Causes and Consequences of the Rectangular Survey in Assigning Property Rights to Land

National Bureau Of Economic Research Inc, Cambridge MA

Investigators

Abstract

The demarcation of rights to land is likely one of the earliest activities undertaken by human societies. Yet, despite the observation that a system of demarcating rights to land will be important in determining use and value, the literature in economics and in law is completely absent on that point. Secure property rights can play an important role in effective management of environmental and natural resources. Locating exogenous factors that influence the security of property rights has been a challenge in analyses of their development and impact on resource use and value. The project is the first systematic economic analysis of property measurement. This project examines an important institutional innovation that has exogenous effects on the precision and security of property rights to land: the systematic demarcation of property boundaries relative to indiscriminate land claiming and bounding. The former results in a uniform grid of square parcels (named the rectangular survey or RS), whereas the latter results in haphazard localized bounding of properties, referred to as metes and bounds (MB). MB is used throughout the world. In the U.S. they are found in the original 13 states, Kentucky, and Tennessee, as well as in the Spanish and Mexican land grants in the Southwest. The rectangular survey outlines boundaries in terms of a centrally-controlled grid of square plots. In the US, the RS was established by the Land Ordinance of 1785, which divided federal government frontier lands into square mile ?sections? that were further divided into smaller uniform allotments for individual claiming or purchase. This project develops an economic framework for examining land demarcation systems, focusing on a comparative analysis of RS and MB. It begins by considering how a decentralized system of land claiming would generate patterns of land holdings that would be unsystematic and depend on natural topography and the characteristics of the claimant population. It then considers how a centralized system generates different ownership patterns and incentives for land use, land markets, investment, and border disputes. RS is likely to lead to more market transactions, fewer border disputes, greater investment, higher land values, and more infrastructure investment than metes and bounds. This project examines a region in central Ohio in which the metes and bounds system (within the Virginia Military District) is adjacent to land governed by the rectangular survey. The primary data include U.S. census manuscripts; court opinions; state reports on infrastructure, legal disputes, and productivity; GIS measures of topography; soil quality; and parcel-level data on boundary shape. This project is constructing parcel-level, township and county measures of boundary irregularity; topography; soil quality; land value; land use; legal disputes; and transportation development. These data will be used to test hypotheses regarding the economic impact of RS relative to MB. The investigators are seeking another year of funding to complete the data collection, more complex than anticipated; to finalize modeling and testing; and finally to extend the study to include analysis of the political economy of the survey and the location of base meridians, the economic history of the Land Ordinance, and examination of the adoption of the RS in Canada and elsewhere. Broader Impacts: The research addresses broader issues of the definition and enforcement of property rights to resources and the impact on resource use and economic welfare. The project involves law, graduate and undergraduate economics students in the research, one of whom already has decided to pursue PhD training as a result of the experience.