Land Openings on the Georgia Frontier and the Coase Theorem in the Short- and Long-Run∗

The Coase Theorem, with low transaction costs, shows the independence of efficiency and initial allocations in a market, while the recent “market design” literature stresses the importance of getting initial allocations right. We study the dynamics of land-use in the two centuries following the opening of the frontier in the U.S. state of Georgia, which — in contrast with neighboring states — was opened up to settlers with a presurveyed and pre-allocated grid in waves with differing parcel sizes. Using difference-indifference and regression-discontinuity methods, we measure the effect of initial parcel sizes (as assigned by the surveyors’ grid) on the evolution of farm sizes decades after the land was opened. Initial parcel size predicts farm size essentially one-for-one for 50-80 years after land opening. This effect of initial conditions attenuates gradually, and only disappears after 150 years. We estimate that the initial misallocation depressed the area’s land value by 20% in the late 19th century. This episode suggests the relevance of the Coase Theorem in the (very) long run, but that bad market design can induce significant distortions in the medium term (over a century in this case).