Urbanization and property rights

Yongyang Cai, Harris Selod and Jevgenijs Steinbuks

No 7486, Policy Research Working Paper Series from The World Bank

Abstract: Since the industrial revolution, the economic development of Western Europe and North America was characterized by continuous urbanization accompanied by a gradual phasing-in of urban land property rights over time. Today, however, the evidence in many fast urbanizing low-income countries points towards a different trend of ?urbanization without formalization?, with potentially adverse effects on long-term economic growth. This paper aims to understand the causes and the consequences of this phenomenon, and whether informal city growth could be a transitory or a persistent feature of developing economies. A dynamic stochastic equilibrium model of a representative city is developed, which explicitly accounts for the joint dynamics of land property rights and urbanization. The calibrated baseline model describes a city that first grows informally, with the growth of individual incomes leading to a phased-in purchase of property rights in subsequent periods. The model demonstrates that land tenure informality does not necessarily vanish in the long term, and the social optimum does not necessarily imply a fully formal city, neither in the transition, nor in the long run. The welfare effects of policies, such as reducing the cost of land tenure formalization, or protecting informal dwellers against evictions are subsequently investigated, throughout the short-term transition and in the long-term stationary state.

Keywords: Public Sector Management and Reform; Urban Governance and Management; Urban Housing; Banks&Banking Reform; Regional Governance (search for similar items in EconPapers)
Date: 2015-11-10
New Economics Papers: this item is included in nep-ure
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