Competing Property Rights and Tenure Insecurity Annual World Bank Conference on Land and Poverty Session 14-07: Can land tenure interventions support urban densification? Washington DC, March 26, 2015 Harris Selod (The World Bank) Liam Wren-Lewis (Paris School of Economics - INRA)

Outline 1.Motivation 2.Stylized facts on property rights 3.Previous literature 4.The framework 5.Conclusion 2

1. Motivation  In developing countries, many urban residents lack tenure security  Security = low risk of eviction or land grab  Security is attained by holding a clearly established and enforced property right (urban context)  Various types of property rights coexist in a city  Various rights providing different levels of tenure security  Secure rights are usually only affordable to the richest households  Research questions  Why does the setting differ in developing and developed countries (where tenure is more uniform)?  How is the coexistence of property rights sustained?  What is the institutional set up for the coexistence of property rights?  Why are there different levels of tenure security that coexist?  What is the demand for each right and sorting across rights? 3

1. Motivation  Policy questions  Is the coexistence of rights desirable? (welfare)  Cheap options for the poor to gain some degree of tenure security  Costly and insecure setting that involves rent-seeking  Impact of (possibly selective) improvements in land administration?  Objective of our work  Build a framework to analyze the sustainability and welfare implications of coexisting property rights  Taking into account 2 important features  Distinct rights-issuing institutions  Possible competition or collusion between rent-seeking institutions  Focus on the pricing of property rights by institutions who may have market power 4

2. Stylized facts  “Piling up” of property rights  History matters: cumulative evolution of land tenure systems (see example of West Africa below, but validity is more general)  colonial era  post-independence and socialist period  land market liberalization  partial decentralization of land management  Economic reasons for the setting to persist (our focus) 5

2. Stylized facts 6 Level of tenure security (in an urban context) Type of property rights (S) SecureReal rights: ownership/freehold titles (P) “Precarious”, i.e. moderately secure Personal rights: residential permits (“use rights” akin to weak form of ownership) administrative documents (I) Informal / Insecurelack of property right  Range of rights with different tenure security levels

2. Stylized facts  Different security levels have two causes  Different qualities (less stringent conditions to obtain a right lead to more defects and exposure to conflicts)  Overlap in rights (with secure rights prevailing over precarious rights)  Fee-charging institutions specialize in different types of rights  Centralized administration (secure rights)  Local administrations (precarious rights)  2 remarks  Fees (including informal fees) much above costs  What does back and forth in mandates of local institutions reveal?  Attempts to fight rent-seeking?  Attempts to consolidate rent-seeking? 7

3. Previous literature  Theories on the coexistence and of formal and informal land tenure  Interactions between formal land market and squatting  under partial equilibrium (Jimenez, 1985)  general equilibrium (Brueckner and Selod, 2009)  Sorting between “continuum” of tenure options  land-use model (where tenure insecurity is driven by multiple sales: Selod and Tobin, working paper)  Empirical work  Capitalization of tenure security in land prices  Jimenez (1982, 1984), Friedman et al. (1998)  Willingness to pay for formalization fees  Ali et al. (working paper) 8

3. Previous literature  General literature on supply of property rights  Security has a negative effect on those who do not purchase security  De Meza and Gould (1992), Marcouiller and Young (1995), Anderson and Bandiera (2005)  Competition between for-profit providers of property rights  Konrad and Skaperdas (2012), but in a context competitors compete through violence, not prices  Land administrations have market power and can capture rents (tenure security premium)  Antwi and Adams (2003) 9

4. The framework 10

4. The framework 11

4. The framework 12

Figure 1 – Tenure regimes as a function of prices P S = P P (π S – π I ) / (π P – π I ) PSPS P w (π P – π I ) w (π S – π I ) S I,S I w (π S – π P ) P,S P I,P I,P,S

Figure 1 – Tenure regimes as a function of prices P S = P P (π S – π I ) / (π P – π I ) PSPS P w (π P – π I ) w (π S – π I ) S I,S I w (π S – π P ) P,S P I,P I,P,S

4. The framework 15

4. The framework 16

4. The framework 17

Case 1: Welfare-maximizing / benevolent government(s) 18

Case 2: Monopoly / collusion between profit-maximizing governments 19

Case 2: Monopoly / collusion between profit-maximizing governments 20

Case 3: Competition between profit-maximizing governments  Both institutions maximize profit and compete with one another  If externality ( ) small: Both prices are lower than under profit-making monopoly (i.e. competition reduces prices)  If externality ( ) large: Competition may increase the price of the secure right, since secure right seller no longer suffers from externality [conjecture] 21

5. Conclusions 22

Future work  When is it “best” to have one property right instead of two?  What happens if institutions can decide on the level of collaboration ( ) or quality (π P )?  What if individuals pay different effective prices (e.g. based on social networks or ability to corrupt)? 23