Heterogeneous Effects of Property Rights on Housing Investment in Urban Peru

Empirical results reported by Field (2005) indicate that improved property rights tend to raise average housing investment among poor urban households in Peru. We investigate if this effect varies across households with differing incomes, how it evolves over time, and whether heterogeneous expectations about future tenure security matter for the estimated effects. The results indicate that the investment response among the poorest households represented by our sample is weak and not significant. Among households with higher incomes, the response is quantitatively large and statistically highly significant. The results further indicate that it may take several years until the response of long-run investment to reformed property rights can be found in the data. Finally, even though expectation of treatment affects the behaviour of non-treated households, the treatment effect changes only slightly when we take into account expectations in our previous estimations, indicating that our results are robust to this problem.