The Effect of Land Demarcation on Farmland Values in California

Abstract

This thesis explores how different systems of land demarcation affect economic performance. Previous literature has established that insecure property rights to natural resources negatively affects the efficiency with which the resource is used. Land demarcation is taken as a physical manifestation of different property rights systems to land. Two land demarcation systems are studied - metes and bounds (MB) and rectangular survey (RS) - in terms of their effect on farmland value, an empirical proxy for economic performance. The MB system is based on random claiming and plotting of land parcels with vaguely defined boundaries. The system of RS is based on a uniform grid of square plots. It is hypothesized that the RS system creates a network and coordination effect amongst landowners thereby helping the land market function more efficiently. An economic framework is developed with predictions that RS areas have higher farmland values per acre and create more incentives to invest in the land. A study of California is carried out using farm data from the 1860 Agricultural Census. It is found that farmland values per acre are lower and there is less incentive to invest in the land in MB regions compared to RS regions. While the results support the thesis, a general conclusion about the state of California is not reached given the data limitations.