Use It or Lose It: Adverse Possession and Economic Development
Abstract: The legal doctrine of adverse possession limits the security of property rights by transferring formal land titles from absentee owners who leave their land idle to adverse possessors that use the land. This paper exploits historical changes in adverse possession legislation in U.S. states between 1840-1920 to investigate the causal effects of the security of land titles. I find that a reduction in the security of titles increased agricultural output. The main channel is incentivizing higher land utilization. A reduction in the security of land right is also associated with an increase of investment in farms and improved access to capital markets, as well as with an increase in the share of owner-cultivated farms and mid-size farms. These findings suggest that the effect of property rights on economic development is not monotonic, and that property rights may be over secure.
