How useful is it to formalize land titles?

There are both costs and benefits to bringing property into the formal sector.  Along those lines, “The Deregularization of Land Titles” is a new paper by Sebastian Galiani and Ernesto Schargrodsky:

In the last years, several countries implemented policy interventions to entitle urban squatters, encouraged by the results of studies showing large welfare gains from entitlement. We study a natural experiment in the allocation of land titles to very poor families in a suburban area of Buenos Aires, Argentina. Although previous studies on this experiment have found important effects of titling on investment, household structure, educational achievement, and child health, in this article we document that a large fraction of households that went through a situation at which formalization was challenged (death, divorce, sale/purchase), ended up being de-regularized. The legal costs of remaining formal seem too high relative to the value of these parcels and the income of their inhabitants.

This piece helps explain why Hernando De Soto’s ideas, however useful they may be in some regards, have not quite transformed either the world or for that matter the practice of development economics.

Here is a good sentence from the paper: “The cost of processing the inheritance of an asset valued at US$ 11,700 is about US$ 2,300.”  Legal systems are a normal good, and legalizing everything too quickly leads to burdens as well as benefits.  Try this bit too: “When property rights are transferred to very poor people, preserving legal tenure will likely entail onerous expenses in the form of attorney and public notary fees, and courts costs.  In addition, these charges are higher in relative terms in very unequal societies where the gap between the poor and the relatively well-off is wider.”

These topics remain under-explored.


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