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Checkerboards and Coase: Transactions Costs and Efficiency in Land Markets

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  • Akee, Randall K. Q.

    (University of California, Los Angeles)

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.

Suggested Citation

  • Akee, Randall K. Q., 2006. "Checkerboards and Coase: Transactions Costs and Efficiency in Land Markets," IZA Discussion Papers 2438, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp2438
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    More about this item

    Keywords

    economic development; land markets; coase theorem;
    All these keywords.

    JEL classification:

    • R14 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Land Use Patterns
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development

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