Property Rights, Place-Based Policies, and Economic Development
June 2019
Working Paper Number:
CES-19-16
Abstract
This paper examines the effect of property rights on economic development within local labor markets, including how property rights change the equilibrium response to place-based policies. It does so in the context of federally recognized American Indian reservations, where a fraction of the land is held in trust by the US federal government and associated with restrictions on transactions. I find that incomplete property rights on reservations are responsible for lower wages and higher levels of unemployment. The direction of these findings is robust to an instrumental variables approach to dealing with the endogeneity of property rights. Next I shed light on the extent to which place-based policies can improve economic outcomes on reservations. I use a spatial equilibrium framework to study the incidence of casino adoption, a place-based policy unique to reservations. The key insight from the model is that incomplete property rights impose frictions in the housing market that lower the migration response to casino adoption, improving the likelihood that the local population benefits. Consistent with the model's predictions, I find that casino adoption raises average wages and that the wage effect is greater on reservations with more land in trust. My estimates suggest that wage increases correspond to welfare improvements. This paper provides insights into how place-based policies and property rights jointly shape economic outcomes through changes in the labor market, the housing market, and the mobility of workers.
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