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Checkerboards and Coase: Transactions Costs and Efficiency in Land Markets

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Author Info
Randall Akee () (IZA Bonn and Harvard University)

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Abstract

The Coase theorem emphasizes the role transactions costs play in efficient market outcomes. We document inefficient outcomes, in the presence of a transactions cost, in southern California land markets and the corresponding transition to efficient outcomes after the transactions cost is eliminated. In the late 1800s, Palm Springs, CA was evenly divided, in a checkerboard fashion, and property rights assigned in alternating blocks to the Agua Caliente tribe and a non-Indian landowner by the US Federal government. Sales and leasing restrictions on the Agua Caliente land created a large transactions cost to development on those lands; consequently, we observe very little housing investment. Non-Indian lands provide a benchmark for efficient outcomes for the Agua Caliente lands. Once the transactions cost for Agua Caliente lands was removed, there is a convergence between American Indian-owned and non Indian-owned lands in both the number of homes constructed and the value of those homes.

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Publisher Info
Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 2438.

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Length: 37 pages
Date of creation: Nov 2006
Date of revision:
Handle: RePEc:iza:izadps:dp2438

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Related research
Keywords: land markets; coase theorem; economic development;

Find related papers by JEL classification:
R14 - Urban, Rural, and Regional Economics - - General Regional Economics - - - Land Use Patterns
O12 - Economic Development, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development

This paper has been announced in the following NEP Reports:

References listed on IDEAS
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  1. Anderson, Terry L & Lueck, Dean, 1992. "Land Tenure and Agricultural Productivity on Indian Reservations," Journal of Law & Economics, University of Chicago Press, vol. 35(2), pages 427-54, October.
  2. Hoffman, Elizabeth & Spitzer, Matthew L, 1982. "The Coase Theorem: Some Experimental Tests," Journal of Law & Economics, University of Chicago Press, vol. 25(1), pages 73-98, April.
  3. Brasselle, Anne-Sophie & Gaspart, Frederic & Platteau, Jean-Philippe, 2002. "Land tenure security and investment incentives: puzzling evidence from Burkina Faso," Journal of Development Economics, Elsevier, vol. 67(2), pages 373-418, April. [Downloadable!] (restricted)
  4. Schwab, Stewart, 1988. "A Coasean Experiment on Contract Presumptions," Journal of Legal Studies, University of Chicago Press, vol. 17(2), pages 237-68, June.
  5. Kahneman, Daniel & Knetsch, Jack L & Thaler, Richard H, 1990. "Experimental Tests of the Endowment Effect and the Coase Theorem," Journal of Political Economy, University of Chicago Press, vol. 98(6), pages 1325-48, December. [Downloadable!] (restricted)
  6. Coase, R H, 1992. "The Institutional Structure of Production," American Economic Review, American Economic Association, vol. 82(4), pages 713-19, September. [Downloadable!] (restricted)
    Other versions:
  7. Dixit, Avinash & Olson, Mancur, 2000. "Does voluntary participation undermine the Coase Theorem?," Journal of Public Economics, Elsevier, vol. 76(3), pages 309-335, June. [Downloadable!] (restricted)
    Other versions:
  8. Gisser, Micha, 1983. "Groundwater: Focusing on the Real Issue," Journal of Political Economy, University of Chicago Press, vol. 91(6), pages 1001-27, December. [Downloadable!] (restricted)
  9. Cheung, Steven N S, 1973. "The Fable of the Bees: An Economic Investigation," Journal of Law & Economics, University of Chicago Press, vol. 16(1), pages 11-33, April.
  10. Timothy Besley & Robin Burgess, 1998. "Land Reform, Poverty Reduction and Growth: Evidence from India," STICERD - Development Economics Papers 13, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE. [Downloadable!]
    Other versions:
  11. Carlson, Leonard A., 1981. "Land allotment and the decline of American Indian farming," Explorations in Economic History, Elsevier, vol. 18(2), pages 128-154, April. [Downloadable!] (restricted)
  12. Anderson, Terry L & Hill, Peter J, 1975. "The Evolution of Property Rights: A Study of the American West," Journal of Law & Economics, University of Chicago Press, vol. 18(1), pages 163-79, April.
  13. Besley, Timothy, 1995. "Property Rights and Investment Incentives: Theory and Evidence from Ghana," Journal of Political Economy, University of Chicago Press, vol. 103(5), pages 903-37, October. [Downloadable!] (restricted)
  14. Cymrot, Donald J & Dunlevy, James A & Even, William E, 2001. "'Who's on First': An Empirical Test of the Coase Theorem in Baseball," Applied Economics, Taylor and Francis Journals, vol. 33(5), pages 593-603, April. [Downloadable!] (restricted)
  15. Anderson, Terry L & Hill, Peter J, 1990. "The Race for Property Rights," Journal of Law & Economics, University of Chicago Press, vol. 33(1), pages 177-97, April.
  16. Quy-Toan Do & Lakshmi Iyer, 2003. "Land rights and economic development : evidence from Vietnam," Policy Research Working Paper Series 3120, The World Bank. [Downloadable!]
  17. Sascha O. Becker & Andrea Ichino, 2002. "Estimation of average treatment effects based on propensity scores," Stata Journal, StataCorp LP, vol. 2(4), pages 358-377, November. [Downloadable!]
  18. Pender, John L. & Kerr, John M., 1999. "The effects of land sales restrictions: evidence from south India," Agricultural Economics, Blackwell, vol. 21(3), pages 279-294, December. [Downloadable!] (restricted)
  19. Luca Anderlini & Leonardo Felli, 2006. "Transaction Costs and the Robustness of the Coase Theorem," Economic Journal, Royal Economic Society, vol. 116(508), pages 223-245, 01. [Downloadable!] (restricted)
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