Development Derailed: Policy Uncertainty and Coordinated Investment

38 Pages Posted: 25 Jun 2018 Last revised: 12 Aug 2021

See all articles by Eric Alston

Eric Alston

Finance Division, University of Colorado Boulder

Steven Smith

Colorado School of Mines; University of Colorado at Boulder

Date Written: June 30, 2021

Abstract

We quantify the sensitivity of investments to policy uncertainty by drawing upon the Northern Pacific’s massive land grant and the ensuing political battle that generated significant uncertainty to title from 1879 to 1894. Focusing on irrigation due to its high asset specificity, our analysis exploits the spatially exogenous extent of the grant to identify causal effects on investment, inclusive of spillovers to secure land because coordinated investment is generally necessary to capture the scale economies of irrigation. We find that the uncertainty significantly deterred and delayed irrigation investment in Montana, lowering the state’s economic activity by up to five percent.

Keywords: Property Law, Property Rights, Railroad Land Grants, Political Economy, Economic Development,

JEL Classification: P48, D23, K11, N51, O13, Q15, H81

Suggested Citation

Alston, Eric and Smith, Steven, Development Derailed: Policy Uncertainty and Coordinated Investment (June 30, 2021). Available at SSRN: https://ssrn.com/abstract=3201434 or http://dx.doi.org/10.2139/ssrn.3201434

Eric Alston (Contact Author)

Finance Division, University of Colorado Boulder ( email )

Campus Box 419
Boulder, CO 80309
United States

Steven Smith

Colorado School of Mines ( email )

1500 Illinois Street
Golden, CO 80401
United States

HOME PAGE: http://https://sites.google.com/site/stevenmichaelsmith/home

University of Colorado at Boulder ( email )

Boulder, CO

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