Given land titles, squatters do more work

January 23, 2003

Free Market Foundation

An estimated 400 to 600 million people worldwide are squatters, living on land to which they have no title, usually on the outskirts of cities. Peruvian economist Hernando de Soto has shown that the growth of squatting was due to legal systems that made it very expensive and took years to title and transfer property. He persuaded Peru to undertake what has become the world’s largest titling program.

From 1995 to 2001, more than 1.2 million households 6.3 million people received title to the properties they were inhabiting.

Before the reforms, it could take years for squatters to obtain a title; the reforms enabled squatters to get titles quickly for a fee of $20 to $50.

In addition to turning land into transferable capital, titling may have other economic benefits. Princeton University economics student Erica Field asked whether the former squatters increased their labour output as a result. The theory is that those without titles must remain at their properties to protect them from intruders, while residents with legal title are freed up to pursue work in the community.

Field found labour supply increased as a result of land titling.

Two to three years after titling came to a neighbourhood, families that were in untitled houses before the reform worked 20 more hours a week, on average, than those from untitled houses in neighbourhoods that had not yet had title reform.

By contrast, among households titled before the reforms, family work hours were a statistically insignificant four hours greater in areas where reform was introduced early than in those where it was yet to be introduced.

Interestingly, although the overall hours worked increased, the amount of labour supplied by children was 27 percent lower for families that were initially squatting in neighbourhoods that introduced title reform early.

Source: Alan B. Krueger (Princeton University), Economic Scene: A Study Looks at Squatters and Land Titles in Peru, New York Times, January 9, 2003; based on Erica Field, Entitled to Work: Urban Property Rights and Labour Supply in Peru Working Paper No. 469, Princeton University, Industrial Relations Section, October 2002

For NYT text http://www.nytimes.com/2003/01/09/business/09SCEN.html
For study text http://www.irs.princeton.edu/seminars/469.pdf
For more on Legal Systems http://www.ncpa.org/iss/int/

FMF Policy Bulletin/15 January 2003