The Development of Property Rights on Frontiers: Endowments, Norms and Politics

How do property rights evolve when unoccupied areas attract economic use? Who are the first claimants on the frontier and how do they establish their property rights? When do governments provide de jure property rights? We present a conceptual framework that addresses these questions and apply it to the frontiers of Australia, Brazil and the U.S. Our framework stresses the crucial role of politics as frontiers develop, by identifying situations where the competition for land by those with de facto rights and those with de jure rights leads to violence or potential conflicts. INTRODUCTION Frontiers are areas not previously used or occupied by non-indigenous inhabitants that are subsequently put to economic use by new settlers. The use of the frontier is influenced by incremental or large changes in demographics, technology, preferences, and other internal and external factors that change relative prices and bring about new opportunities on land for inmigrants. By their nature, frontiers are places where property rights emerge and evolve, which make them ideal for the study of institutions and institutional change. This has been reflected in the large volume of published work in the past decades on the impact of colonial institutions on current economic performance. These analyses find that the type of property rights that emerged initially on the frontiers crucially determined how property rights evolved overtime. Another argument in this literature is that the initial institutions had surprisingly long-lasting effects on the performance of the countries. We propose an alternative approach to understanding the process of frontier settlement of emerging and evolving property rights that contrasts with two prominent theories in the literature: the externality analysis of Harold Demsetz and the factor endowment analyses of Stanley Engerman and Kenneth Sokoloff, and Daron Acemoglu, Simon Johnson and James Robinson. Each of these approaches, ours included, starts with a neoclassical explanation that the costs and benefits presented by opportunities at the frontier shape the property rights that initially emerge. Our explanation differs by emphasizing the subsequent roles played by norms and politics in the process of 1 Demsetz, “Toward”; Engerman and Sokoloff, “Factor Endowments, Institutions”, “Factory Endowments, Inequality”; Acemoglu, Johnson and Robinson, “Colonial Origins”, “Institutions.”