Property Rights and Development: The Contingent Case for Formalization

Abstract

The conventional wisdom among economists and development scholars is that strong formal property rights are a necessary pre-condition for economic growth. By way of a thorough analysis of the theoretical and empirical literature relating to property rights and economic development, this paper questions this wisdom and argues instead for a more nuanced and context-dependent approach to the understanding of the relationship between property rights and development. This first part of this paper argues that in certain cases, the costs of a creating a formal property rights regime outweigh the benefits derived from that regime. The second part argues that property rights regime cannot be viewed as isolated institutions which are independent from other social institutions, but rather that the success of a formal property rights regime is contingent upon the successful operation of a number of other institutions. Finally, the third part examines the process of transition from an informal to a formal property rights regime and argues that the appropriate model for facilitating that transition crucially depends on the reason for the perpetuation of the informal regime.