Inter-generational effects of titling programs: physical vs. human capital

Human capital investment may be affected by programs aimed at giving legal ownership titles to occupants of land; these are called "land titling programs". Titling is associated with an income (or wealth) effect inducing higher expenditure in normal goods like home consumption, education and health services. But there is also a substitution effect. The elimination or reduction of expropriation risk makes investments in the home more attractive and therefore increases the “opportunity cost” of other forms of spending. The net effect on human capital is ambiguous. We present a simple model to illustrate this point and test it using a natural experiment in Uruguay. Our results confirm that titling favors home investment in detriment of some dimensions of educational and health care investment for children of 16 years or less.