Given the prevalence of squatter communities in the developing world, ambitious and
costly programmes for granting title to land have been proposed as a means of
assistance. New research by Jean Lanjouw and Philip Levy, published in the latest
issue of the Economic Journal, suggests that these programmes will be most useful if
they are targeted at new and disorganised communities and designed to reach
households of women and children.
Strong property rights are often taken as an absolute prerequisite for a market economy
to function well. Lanjouw and Levy show ways in which those rights can develop
without government involvement. In particular, their research shows that informal claims
on property can partially substitute for formal property rights. Homeowners in urban
Ecuador were able to sell and rent their properties even in the absence of formal
property rights. But having a property title was still valuable: on average, it added up to
23.5% to the value of a home.
The study draws a distinction between those types of property claims that can be
readily transferred from one owner to the next (such as legal title) and those that are
non-transferable (such as long -time residence on the property).
This distinction implies that the benefits of granting official ownership can vary widely.
For example, the probability that someone could sell an untitled property was estimated
to be just 16% if the property was in an 8 -year old community established without an
organiser. In a community 18 years old, the probability rose to over 50%. The
advantage of holding formal title, which would take the probability to near 100%, is thus
greater in younger communities.
Oddly, the same strong informal claims that may let a household comfortably rent or
retain a property may impede a sale, since the claims are non-transferable and the new
purchaser cannot be sure the seller won’t try to exercise them at a later date. Formal
title removes this concern.
These results come from carefully designed field surveys in Guayaquil, Ecuador in
1996. Households in low- and middle-income communities were asked about their
claims to their property, the value of their property, and their ability to sell or rent it. This
study differs from previous work on the value of formal title in that the benefits are
calculated from households’ own perceptions of title’s effect, rather than from predicted
benefits based on the characteristics of the property.
ENDS
Notes for Editors: 'Untitled: A Study of Formal and Informal Property Rights in Urban
Ecuador’ by Jean O. Lanjouw and Philip I. Levy is published in the October 2002 issue
of the Economic Journal.
Lanjouw is Senior Fellow, The Brookings Institution and The Center for Global
Development and Associate Professor, University of California at Berkeley; Levy is
Associate Professor of Economics, Yale University and Academic Director, Yale Center
for the Study of Globalization.
For Further Information: contact Jean Lanjouw on +1-202-797-6275 (email:
jlanjouw@brook.edu Philip Levy on +1-203-432-1902 (email: philip.levy@yale.edu); or
RES Media Consultant Romesh Vaitilingam on 0117-983-9770 or 07768-661095
(email: romesh@compuserve.com).