Professor Dean Lueck recently presented his paper (with Gary Libecap), The Demarcation of Land: Patterns and Economic Effects, at the Law and Economics Workshop. This is a forum where academic working papers are presented and discussed among interested faculty and students.
The two predominant ways that land is demarcated are metes and bounds (MB) and a centralized, rectangular survey (RS). The MB system is fairly haphazard, with settlers demarcating portions of land according to natural or man-made landmarks. This can result in highly irregular shapes (see picture), but in some areas (usually flat), it results in rectangular plots. RS demaracation is initiated by the government and plots the lands in a systematic way, disregarding any geographical barriers (mountains, streams, etc.). While the difference between demarcation systems may seem like an archaic question in this country, it may be of great use in developing countries with large areas of government-owned land. When that land is made available to citizens, the government will have to choose whether to impose a RS itself or allow the citizens to use MB to demarcate the land.
Professor Dean Lueck studied the economic effects of these two different demaracation systems by comparing land inside and outside the Virginia Military District of Ohio (VMD). In the VMD, veterans of the Revolutionary War were given land grants and were allowed to settle the area using a MB system. Outside the VMD, the government used the RS that became prevalent in all states except the original thirteen colonies.
The findings were drastic. First, the VMD (MB) area had more property-based disputes and higher lawyers per capita. These disputes are costly and make MB land less desirable. This could have been caused by irregularly shaped land making it hard for land owners to know their property boundaries. But it may also have been due to endemic cheating where VMD settlers would purposefully vaguely describe the borders (or use movable markers), so that they could adjust their borders at a later date to secure the most valuable land. These two potential explanations make it unclear whether the greater incidence of disputes was something inherently associated with MB land, or whether it was just a product of how MB was implemented in this area (moveable landmarks). This uncertainty is one of the unsolved questions in the paper.
Also, RS land had approximately 20% higher road density, most likely suggesting a better infrastructure and more valuable land. This appears to be quite intuitive. In areas with irregular land shapes, it is hard to construct roads along property boundaries. In a RS area, there is a rectangular grid of land borders, allowing easy road construction along the borders. In MB, the roads would have to zig-zag or go through the middle of some land plots. Both of these solutions are not desirable--either travel distance is increased (by zig-zagging roads) or land owners have roads going through the middle of their property. This effect still occurs in flat areas where MB tends to form individual rectangular plots. The individual rectangular plots will have different orientations because there is no centralized grid (see picture). This disrupts the rectangular grid, making it harder to construct roads.
Finally, the most significant result was VMD land was worth less than 40% as much as non-VMD land in 1860. The two previous results provide plausible explanations for why this would be the case. But yet, this result is still puzzling. With such a large land-value difference, it seems that speculators or land developers could have taken advantage of the situation. These developers could have bought large blocks of cheap VMD land and subdivided it themselves into a RS. By doing so, roads could be easily built and there would be no greater incidence of property disputes. The land values would rise as a result. Even if transactional costs were prohibitive, farmers could have leased portions of their fields to each other to ensure that each person had a rectangular plot. This would have removed any potential farming inefficiency from having an irregular-shaped plot. These types of transactions should have equalized the land values because there was no inherent difference in VMD and non-VMD land.
The explanation for why this didn't happen may be benign--perhaps not enough time had passed for these transactions to take place. Most of the initial settling didn't take place until 1810-1830 and the reported difference in value was in 1860. There may be no difference in land value today. Or another plausible story is that economic development is "path dependent." Without the well-defined grid of a RS system, roads cannot be built and there are numerous property disputes. Investment lags as a result. This causes the infrastructure to fall behind other areas, so that subsequent land transactions cannot as easily correct the low land values. Even if a developer could create rectangular plots, the area would have poor infrastructure and the land values would remain low. If this was the case, then the initial choice of MB or RS is very important.
Why these transactions didn't take place is a very important question for countries deciding whether the costs of a centralized RS survey are worth it. If the market can correct for any inefficiencies resulting from MB, then it may be unnecessary to impose a RS. Instead, a country could just let the citizens demarcate the land themselves using MB.