Lowering Transaction Costs through Institutional Arrangements: The Causes and Consequences of the Rectangular Survey in Assigning Property Rights to Land

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The growing literature on cross-country economic growth generally finds that property institutions create incentives for investment, production, and trade, and determine the performance and scope of markets by shaping the size and nature of transaction costs. The delineation and enforcement of property rights to land depends importantly on the system under which land is surveyed (bounded), measured, and transacted. In the United States there are two primary systems: the metes and bounds system found primarily in the eastern and southern states; and the rectangular survey system found generally in the rest of the states. The metes and bounds system demarcates properties in terms of idiosyncratic, local natural features and land contours-rocks, trees, prominent points, streams. The rectangular survey, in contrast, uses a standardized, uniform demarcation based on position within a pre-defined grid that is independent of the locality and time. The rectangular survey should reduce the transaction costs of land property rights definition, enforcement, and exchange. The research question in this proposal is to determine whether the rectangular survey increased the efficiency of the land market (affecting land values, land investment and use, land disputes) and thus contributed to overall economic growth. The project has two parts: 1) Analyze the economic effects of the rectangular survey; and 2) Analyze the economic structure of the rectangular survey. The first part will estimate the effect of the rectangular survey on land values, land investment and land use, and land disputes compared to land governed by metes and bounds or other non-rectangular systems. It will examine county and parcel level data in several specific regions where both rectangular and non-rectangular systems were used. The second part will determine the factors that led to (a) the adoption of the rectangular survey in a particular state of region at a particular time; and (b) the location of the meridians and baselines that support the rectangular survey.A. Intellectual Merit The project will be the first systematic economic analysis of the most fundamental feature - the method of measurement -- of the land system in the United States, which has been key historically in economic development and currently in differential growth across societies. The existing literature on property institutions is suggestive, but the aggregate results cannot detail the exact linkages among institutions, incentives, and transaction costs in the process of economic growth. This project will have the detail necessary to determine these linkages.B. Broader ImpactsThe project will analyze the effect of the rectangular survey on transaction costs and development of the United States' land market. It will use estimates of the effects on land value, land investment and use, and land disputes from other regions of the United States to infer the aggregate effect on the national land market. In developing economies land is the major asset, so lowering these transaction costs could provide a major boost to economic growth. Once the project completes its analysis of the determinants of the survey and its impact on land values, land investment, and land use, it will assess the aggregate impact on provision of roads and other local public goods, such as schools.