Thursday, December 14, 2006

Coase in action: Checkerboards and Coase by Randall Akee

Given our study of Coase in Econ211 this paper appears to provide an interesting empirical example of how the elimation of transaction costs can lead to an efficient outcome and how governments can act as the "nudger" in the right direction.

"Checkerboards and Coase: Transactions Costs and Efficiency in
Land Markets"
IZA Discussion Paper No. 2438

Institute for the Study of Labor (IZA)

Full Text:

ABSTRACT: The Coase theorem emphasizes the role transactions
costs play in efficient market outcomes. We document inefficient
outcomes, in the presence of a transactions cost, in southern
California land markets and the corresponding transition to
efficient outcomes after the transactions cost is eliminated. In
the late 1800s, Palm Springs, CA was evenly divided, in a
checkerboard fashion, and property rights assigned in alternating
blocks to the Agua Caliente tribe and a non-Indian landowner by
the US Federal government. Sales and leasing restrictions on the
Agua Caliente land created a large transactions cost to
development on those lands; consequently, we observe very little
housing investment. Non-Indian lands provide a benchmark for
efficient outcomes for the Agua Caliente lands. Once the
transactions cost for Agua Caliente lands was removed, there is a
convergence between American Indian-owned and non Indian-owned
lands in both the number of homes constructed and the value of
those homes.

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