The Brookings Institution, Washington, D'C'www'brookings'edu

1
Untitled A Study of Formal and Informal
Property Rights in Urban Ecuador

• Jean O. Lanjouw
• UC Berkeley
• The Center for Global Development
• The Brookings Institution
• Philip Levy
• Yale University

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ConclusionThe importance of formal property
rights institutions depends on the availability
of informal sources of rights.

• Quantify value via Hedonic Price Regressions
• Unobservable quality characteristics
• Endogeneous rights
• Estimate within household and property

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Model of Transactions

• Sale Price (Utility, Transactions Uncertainty)
• ?Price (? Utility, ?Transactions Uncertainty)

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Example The two effects of title on property
prices
? Hedonic price regression 75 ? Utility derived
from property (what we want) 50
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Key Distinction in ownership claims is not
formal vs. informalbut rathertransferable vs.
non-transferable

• The differential effect of non-transferable
  rights in sale and rental markets, and between
  family and outsiders, provides empirical evidence
  that transactions uncertainty matters

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Guayaquil

• Community/Organizer/Formal overlay
• Titling Programs underway during study period
• Are they a good idea?

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Benefits of Title and Tenure Security

• Increased utility from security
• Increase in returns to private investment
• Similarly in contributions to community assets
• Enhanced ability to transfer property, thus
• The use of property as collateral
• An expanded market for sales and rental
• All of which lead to higher property value

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Household and Community Surveys

• Fielded July - August 1996
• The Sample Stratified random sample of 20 low
  and middle-income communities. Stratified by age
  of the community and by percentage of households
  having title.
• Simple random sample of 20 households within
  each community.
• Contents LSMS plus new modules related to
  property rights issues.

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Are they a good idea?

• Costs of titling
• To squatters
• About 5 of value of untitled property
• Equal to avg annual p/c consumption
• To government
• maintaining land registry
• subsidies
• enforcement

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Are they a good idea?

• Benefit of title - within estimates
• Upper bound average increase in utility - 23.5
• 1 year old community with no organizer - as much
  as 52
• Greater effect on utility of more vulnerable
  households ? distributional effects

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Paper just out in the Economic Journal (2002)
Vol. 112. pp 986-1019.