Financial Development <---> Property Rights

There is a consensus that stronger property rights advance financial development. We provide evidence that the reverse hypothesis is also true. We isolate the structural component in the finance–property rights relationship using an instrument for financial development (private credit) based on an index of exposure to foreign crises, in addition to generalized method of moments approaches for panel data. Our results suggest a one standard deviation increase in private credit from its average in 2005 translates into a 0.5- to 1.0-point increase in property rights. To contextualize this, the difference in property rights between Israel and Uruguay, two countries separated by about one standard deviation in the volume of private credit, was 0.67 points.

Source. (Gated)

On reading novels (and economics)

We all know that reading a novel can transport you, delight you and intrigue you while you’re reading it. Now, thanks research by scientists at Emory University, we know that immersing yourself in a novel causes measurable physical changes in the brain that can be detected up to five days after the reader closes the book. 

The Emory researchers, in a paper for the journal Brain Connectivity, compared the effect to “muscle memory.” 

"The neural changes that we found associated with physical sensation and movement systems suggest that reading a novel can transport you into the body of the protagonist," neuroscientist Gregory Berns said, according to a report in the journal Science Codex. "We already knew that good stories can put you in someone else's shoes in a figurative sense. Now we're seeing that something may also be happening biologically."

Read more here.

And by the way, the essay "Property and markets in Elmer Kelton novels" (Public Choice, 2014), is great. 

Two Approaches to Measure the Effects of Blocking Access to the Pirate Bay

From a new paper by Joost Poort, Jorna Leenheer, Jeroen Van der Ham, & Cosmin Dumitru.

In the fight against the unauthorised sharing of copyright protected material, aka piracy, Dutch Internet Service Providers have been summoned by courts to block their subscribers’ access to The Pirate Bay (TPB) and related sites. This paper studies the effectiveness of this approach towards online copyright enforcement, using both a consumer survey and a newly developed non-infringing technology for BitTorrent monitoring. While a small group of respondents download less from illegal sources or claim to have stopped, and a small but significant effect is found on the distribution of Dutch peers, no lasting net impact is found on the percentage of the Dutch population downloading from illegal sources.

And from the conclusions:

First of all, the intervention can only affect consumers who (intend to) download from illegal sources, about 24% over the past six month or 27-28% over the past year. For this segment of the population, it is found that a large majority (70-72%) are non- responsive to blocking access to TPB.

And more:

Instead, the percentage who downloaded films & series, games and books from illegal sources in the preceding six month has increased between May and November-December 2012, while the percentage downloading music from illegal sources remained constant.

The abstract is here (the link to the paper does not work). An an ungated version is here.  

Do Kinship Networks Strengthen Private Property Rights? Evidence from Rural China

This paper finds that the existence of strong kinship networks tends to enhance property rights in rural China by protecting villagers against unwanted government land takings. It then distinguishes kinship networks from other kinds of social networks by showing that their deterrence effect against coercive takings is far more significant and resilient under conditions of prevalent rural-urban migration than deterrence by neighborhood cooperatives and religious groups. Finally, the paper attempts to identify and differentiate between various possible mechanisms behind these effects: It argues that kinship networks protect property rights mainly through enabling repeated social interaction between members, which facilitates collective action against coercive takings. Kinship networks are more effective than neighborhood cooperatives or religious groups at sustaining repeated social interaction over long distances and, therefore, are less affected by rural-urban migration. Altruism between kinsmen, however, does not emerge from the data as a major factor.

More specifically:

We find that stronger kinship networks, measured by the prevalence of active lineage registries (zupu) and ancestral halls (citang) in a village, strongly correlate with lower levels of land taking, even after controlling for potential endogenous variables such as per capita landholding and proximity to urban centers. Because the danger of reverse causation is low here, we argue that kinship networks protected property rights against unwanted land takings. We also find that China’s massive rural-urban migration over the past three decades has eroded the protective effect of kinship networks much less severely than those of neighborhood organizations and religious groups. P. 2.

That is from a paper by Taisu Zhang & Xiaoxue Zhao.

Tragedy of the anticommons

Heller in a new working paper writes: 

This article gives a concise introduction to the ‘tragedy of the anticommons.’ The anticommons thesis is simple: when too many people own pieces of one thing, nobody can use it. Usually, private ownership creates wealth. But too much ownership has the opposite effect – it leads to wasteful underuse. This is a free market paradox that shows up all across the global economy. If too many owners control a single resource, cooperation breaks down, wealth disappears, and everybody loses. Conceptually, underuse in an anticommons mirrors the familiar problem of overuse in a ‘tragedy of the commons.’ The field of anticommons studies is now well‐established. Over a thousand scholars have detailed examples from across the innovation frontier, including drug patenting, telecom licensing, climate change, compulsory land purchase, oil field unitisation, music and art copyright, and post‐socialist economic transition. Fixing anticommons tragedy is a key challenge for any legal system committed to innovation and economic growth.

A key distinction (but a difficult one) to make is between legitimate rights of ownership and artificial privileges (see here). 
I did not find the full paper, the wikipedia definition is here.  

How would you graph the tragedy of the anticommons? 

Institutional Economics: Credit Markets and Land Titling

In a recent paper Dower & Potamites argue that having a land title helps getting a loan not only because it represents collateral but also because it signals important unobservable characteristics about the borrower. 

In Indonesia, as in many developing countries, obtaining a formal title is a lengthy, bureaucratic and costly process. Therefore, having a formal land title can provide information about unobservable characteristics, such as an ability to interact within formal rules, the degree of integration into formal markets, business-minded characteristics or the condition of the asset. The bank may prefer to lend to formally titled households not only because the title mitigates the bank’s risk in the case of a default, but also because the title provides ex-ante information about the likelihood of compliance with the loan contract. [Italics added].

The abstract of the paper: 

Many land titling programs have produced lackluster results in terms of achieving access to credit for the poor. This may reflect insufficient emphasis on local banking practices. Bankers commonly use methods other than collateral to ensure repayment, such as targeting borrower characteristics that, on average, improve repayment rates. Formal land titles can signal to the bank these important characteristics. Using a household survey from Indonesia, we provide evidence that formal land titles do have a positive and significant effect on access to credit and at least part of this effect is best interpreted as an improvement in information flows. This result stands in contrast to the prevailing notion that land titles only function as collateral. Analysts who neglect local banking practices may misinterpret the observed effect of systematic land titling programs on credit access because these programs tend to dampen the signaling value of formal land titles. 

The title of the paper is "Signaling Credit-Worthiness: Land Titles, Banking Practices and Formal Credit in Indonesia" (September 2012). It is here. 
H/t: Mark Lee.  

Why are property rights not adopted more widely?

If property rights in land are so beneficial, why are they not adopted more widely? I propose a theory based on the idea that limited property rights over peasants' plots may be supported by elite landowners (who depend on peasants for labour) to achieve two goals. First, like other distortions such as taxation, limited property rights reduce peasants' income from their own plots, generating a cheap labour force. Second, and unlike taxation, they force peasants to remain in the rural sector to protect their property, even if job opportunities appear in the urban sector. The theory identifies conditions under which weak property rights institutions emerge, providing a specific mechanism for the endogenous persistence of inefficient rural institutions as development unfolds. It also predicts a non-monotonic relationship between the quality of rural property rights and land in the hands of peasants.

That is from a paper by Leopoldo Ferguson. The question is important. There are many reasons why property rights are not adopted more widely in developing regions. Besides Ferguson's story we can add 1) competing claims on the same property which are hard to elucidate, 2) judicial systems that are very slow to solve competing claims and to adjudicate rights when the only evidence is oral, 3) unwillingness to formalize the land due to lack of information of the benefits of doing so, 4) the existence of complex collective action arrangements which make formalization not efficient for some individuals, or simply that 5) peasants find very hard to organize themselves to promote legalization. In any case, Ferguson story is intriguing.

The paper it is titled The Political Economy of Rural Property Rights and the Persistence of the Dual Economy (June 2012). 

HT: Catalina Carvajal

Religiosity, property rights, and the rule of law

A new paper, "Does Religiosity Promote Property Rights and the Rule of Law?" by Berggren and Bjørnskov (January 2012) claims:

We have explored the cross-country association between religiosity and two indices of the de facto protection of property rights. Whereas the previous empirical literature has utilised religious membership shares as their measure of religion, with ambiguous findings, we introduce religiosity (measured as the share of people in different countries that indicate that religion is an important part of daily life) as a new aspect of potential relevance for institutional quality.

It concludes:

In the empirical analysis, we find a clear, negative and statistically significant effect of the importance of religion in daily life on two institutional measures.

What institutional measures?

The Heritage and Kaufmann indices.

A graph from the paper:

I believe The US is pretty exceptional in this issue (the relationship between these variables seems to be positive).
HT: Eugene Beaulieu.