Development Derailed: Uncertain Property Rights and Coordinated Investment

80 Pages Posted: 25 Jun 2018 Last revised: 3 Sep 2020

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: August 18, 2020

Abstract

We empirically quantify the sensitivity of investments to uncertain property rights by drawing upon the Northern Pacific’s massive land grant and the ensuing political and legal battle that generated significant uncertainty to title. To overcome the empirical challenge that property rights and investment coevolve, our analysis exploits the spatially exogenous extent of the grant to identify causal effects. Focusing on irrigation due to its high asset specificity and centrality to development in the arid west, we find that the uncertainty delayed (4.2 years) and deterred (28 percent) irrigation investment in Montana, lowering the state’s total economic activity by 6 percent.

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

Suggested Citation

Alston, Eric and Smith, Steven, Development Derailed: Uncertain Property Rights and Coordinated Investment (August 18, 2020). 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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