Monday, February 13, 2012

"In Land, Straight Lines Make For Square Deals"

Land in the USA not located in the east or Texas is divided into 6 mile-square townships by the Public Land Survey System. The townships are further divided into sections one mile square. These sections can be further subdivided.

Gary D. Libecap of the Hoover Institution argues that this system strengthens and protects property rights, thereby promoting economic development. To make his point, he looks at an area of Ohio called the Virginia Military District (VMD) which, to this day, is divided by the old metes and bounds method. ("From the big oak tree north to the stream," etc.) The land around this district is divided by the Public Land Survey System. Libecap and a colleague found the following.

Using census data, we examined land values in the VMD and adjacent counties in two ways. First, we gathered land values, land characteristics, and individual owner attributes from the 1850 and 1860 censuses. Then we gathered land values for the same regions from 1850 through 1950 (the census changed the way it collected data after that so we could not go through 2010). We found that, controlling for land and owner characteristics, land values were around 25 percent higher under the rectangular system than under metes and bounds in 1850 and 1860. Further, extending the analysis for 100 years revealed that these land value differences persisted!

To learn why that might be so, we turned first to data on land disputes from Ohio court records. Over the entire nineteenth century, we found that parcels in the VMD had 18 times more land boundary disputes than the rest of Ohio combined. Indeed, the history of the VMD is one of ongoing land conflicts. We then turned to land market activity. Land transactions in the middle of the nineteenth century were about 75 percent greater in the counties adjacent to the VMD than within it.

Land values were 25 percent higher in the rectangular system than in metes and bounds.

Finally, we looked at the long run to see how weak property rights, diminished land market activity, and continuing boundary disputes affected the VMD relative to adjacent and otherwise comparable lands under the rectangular system. Remarkably, not only did the rectangular survey lands have higher land values from 1850 through the middle of the twentieth century than the metes and bounds lands in the VMD, but they gradually had higher population densities, more urbanization, and more investment in industry. The VMD lands, which started out similarly to the surrounding regions, steadily fell behind in attracting people and economic activity