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Tuesday, July 11, 2006

Gold Rush and Property Rights

Californiamaploc_1 I've been reading Karen Clay's Squatters, Production, and Violence, which is available on ssrn. Clay's abstract reads:

This paper uses a model and historical data from California in 1860, a time at which property rights were uncertain, to investigate the links among property rights, production, and violence. Consistent with the model, squatters had production that was 15-47 percent lower than non squatters; a 10 percent increase in the density of squatters was associated with an 8-17 percent decrease in agricultural output per acre, and, at levels above the mean, increased density of squatters was associated with higher levels of violence. The market for squatting does not appear to have been in equilibrium. This may reflect the imperfect information available to squatters, sorting based on a taste for violence, or our use of aggregate data. We then compare our results on agricultural production for California to results for other states west of the Mississippi in 1860 and in 1880. The negative effects of squatting were widespread in 1860, but by 1880 the effects had abated in many places as the number of squatters fell. The results on production and violence have implications for understanding the historical development of agriculture in the United States more broadly, since squatting on agricultural land was prevalent throughout the United States, and for understanding agriculture in the Third World, since uncertain property rights in agricultural land are still an issue today.

Pretty interesting study.  And it reminds us of the importance of stability in property rights (and lots of other rights, too).  And maybe makes one believe that the state has a larger role than we sometimes credit it, in creating order and fostering economic development.

Endnote: The map of California is from our friends at the Library of Congress.

Alfred L. Brophy
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