Transaction Costs of Property Rights: Evidence from Timber Auctions

Abstract: We identify an institution in three Western states, Oregon, Idaho, and Washington State that allows us to quantify several transaction costs associated with monitoring, negotiating, accessing, and deriving value from property rights. We analyze the winning bid price of an auction to harvest timber on state-owned land. We use the type of ownership bordering the harvest area—federal, private and state—as a measure of transaction costs, and test the effect of the transaction costs on the winning bid price. Consistent with our hypothesis, our paper shows that higher transactions costs associated with deriving value from property rights decrease bid prices. Moreover, the transactions costs vary by the type of owner adjacent to the harvest area, and are highest when the adjacent owner is the federal government. Additionally, we identify a change in a legal regime that allows us to analyze how transactions costs affect bid prices.