Transaction Costs and the Value of Mining Claims

Abstract

Under the 1872 Mining Law, claimants can to acquire outright title to federal lands. Yet miners have not widely used this land-disposal feature, known as the mineral patent provision, since the early part of the century. In this paper I use a property rights framework to examine the relationship between transaction costs and the value of formal title to an asset. Specifically, I examine the incentives to acquire title to mining claims on federal lands. I argue that the benefits of title are a function of the costs of enforcing rights to unpatented claims. To examine this assertion, I construct a data set on patent activity and legal disputes for twelve western states covering the period 1882-1932. The data reveal a strong relationship between the transaction costs variables and the level of patent applications. The empirical results support the hypothesis that a decrease in the costs of enforcing rights to untitled claims led to a corresponding decrease in the value for full title.

JEL Classification: Q3, N5, K0