Property Rights Imperfections, Asset Allocation, and Welfare: Co-Ownership in Bulgaria

Abstract

This paper analyzes how imperfections of property rights affect allocation of assets and welfare, using micro-survey data from Bulgaria. Co-ownership of assets is widespread in many countries due to inheritance. Central and Eastern Europe offers an interesting natural experiment to assess the effects of such rights imperfections because of the asset restitution process in the 1990s. Bulgaria is particularly interesting because of the prominence of the co-ownership problem (about half of all land plots are co-owned), because of the strong fragmentation of land, and because of legislation providing an instrument to separate out chosen (endogenous) versus forced (exogenous) forms of co-ownership. We find that land in co-ownership is much more likely to be used by less efficient farm organizations or to be left abandoned, and that it leads to significant welfare losses.