Checkerboards and Coase: Transactions Costs and Efficiency in Land Markets

37 Pages Posted: 28 Nov 2006  

Randall Akee

IZA Institute of Labor Economics

Date Written: November 2006

Abstract

The Coase theorem emphasizes the role transactions costs play in efficient market outcomes. We document inefficient outcomes, in the presence of a transactions cost, in southern California land markets and the corresponding transition to efficient outcomes after the transactions cost is eliminated. In the late 1800s, Palm Springs, CA was evenly divided, in a checkerboard fashion, and property rights assigned in alternating blocks to the Agua Caliente tribe and a non-Indian landowner by the US Federal government. Sales and leasing restrictions on the Agua Caliente land created a large transactions cost to development on those lands; consequently, we observe very little housing investment. Non-Indian lands provide a benchmark for efficient outcomes for the Agua Caliente lands. Once the transactions cost for Agua Caliente lands was removed, there is a convergence between American Indian-owned and non Indian-owned lands in both the number of homes constructed and the value of those homes.

Keywords: land markets, coase theorem, economic development

JEL Classification: R14, O12

Suggested Citation

Akee, Randall, Checkerboards and Coase: Transactions Costs and Efficiency in Land Markets (November 2006). IZA Discussion Paper No. 2438. Available at SSRN: https://ssrn.com/abstract=947459

Randall Akee (Contact Author)

IZA Institute of Labor Economics ( email )

P.O. Box 7240
Bonn, D-53072
Germany

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