Property rights, community public goods, and household time allocation in urban squatter communities: evidence from Peru.

• Author: Field, Erica
• Position: Property Rights and Economic Development

TABLE OF CONTENTS INTRODUCTION I. CONCEPTUAL FRAMEWORK II. PROJECT BACKGROUND III. EMPIRICAL STRATEGY A. Regression Model IV. EMPIRICAL RESULTS A. Program Effect on Tenure Security B. Program Effect on Time Spent Inside the Home C. Program Effect on Time Outside the Home 1. Labor Supply 2. Leisure Activities Outside the Home D. Community-Level Evidence 1. Neighborhood Organizations 2. Law Enforcement CONCLUSION INTRODUCTION

Urban property reform is an issue of current importance in many developing countries. Among policymakers, property titling is increasingly considered an effective form of government intervention for targeting the poor and encouraging economic growth in urban areas. (2) While there exists a wide body of literature demonstrating the positive influence of property institutions on market outcomes, there is little microeconomic evidence documenting the cost of informality to individual households. This Article contributes to the literature by examining the time costs of informal tenure arrangements in squatter communities. A number of authors have noted that, in many settings, informal institutions arise to compensate for the absence of formal property protection. (3) In such settings, one of the principal gains of strong property institutions is to shift the burden of property protection and enforcement away from individual households and informal communities to the state. (4) Hence, an important outcome of titling efforts that effectively increase household tenure security should be to allow households and communities to reallocate time away from this role.

To explore the relationship between institutional reform and household-level resource allocation, this Article examines whether improvements in tenure security that result from giving property titles to urban squatters in Peru influence the time allocation of household members across labor and leisure activities inside and outside the home. In particular, this Article explores whether receiving a legal property title reduces the likelihood that households will keep individuals at home and inside the community to protect property, thus leading these individuals to increase employment and leisure hours outside the home. The idea underlying these predictions is that, in the absence of formal legal property protection, households and informal communities have an incentive to provide their own human resources for residential security, and thus, to consider the need to stay at home or close to home when making time allocation choices.

Hence, this Article also examines whether strengthening property institutions encourages households to relocate entrepreneurial activity from inside to outside the home. Finally, because property formalization presumably shifts the burden of land protection from individual communities to the state, this Article examines whether titling is also associated with a reduction in the level of land-related neighborhood governance and an increase in the role of formal law enforcement at the neighborhood level.

This Article examines these relationships using data from a dramatic nationwide titling program in Peru (Program), in which 1.2 million property titles were distributed to urban squatters on public land, the largest urban property rights reform that has occurred in the developing world. (5) The empirical strategy employed in this study takes advantage of the Program as a natural experiment by making use of staggered regional program timing. A general difficulty in studying the influence of property titles and a weakness inherent in the past literature is concerned over endogeneity that arises in comparing titled and untitled households. In particular, the tenure status of a given household is generally a function of the household demand for legal protection, which is likely to be related to factors affecting household and community time allocation choices. The Peruvian reform, in which all house holds were "assigned" property titles irrespective of household demand for formalization, helps to isolate the causal effect of property titling on household behavior by enabling a comparison of households in early program neighborhoods to households in late program neighborhoods, all of which lie within the set of eventual program participants. Because it is impossible to completely rule out potential endogeneity of program timing, the second technique of the identification strategy is to make use of a comparison group of households in early and late neighborhoods that already possessed a property title before the existence of the Program. Hence, I estimate the program effect in a difference-in-difference framework, in which the difference in the behavior of program beneficiaries and non-beneficiaries in early program areas is compared to the difference in late program areas.

While there is a large body of research examining the influence of property titles on market outcomes, the influence of property titles, as outlined in the existing literature, has focused almost entirely on three outcomes established in a seminal paper by Timothy Besley: gains from trade in land, greater investment incentives, and improved credit access. (6) Among these, a leading motivation for property reforms is the notion that strengthening ownership rights will encourage lenders to use property as collateral in loan transactions. (7) Peruvian economist and urban property reform advocate Hernando de Soto states:

In the midst of their own poorest neighborhoods and shanty towns ... there are trillions of dollars, all ready to be put to use.... [Yet] because the rights to these possessions are not adequately documented, these assets cannot readily be turned into capital, cannot be traded outside of narrow local circles where people know and trust each other, cannot be used as collateral for a loan, and cannot be used as a share against an investment. (8) For this reason, government land titling programs are widely considered a critical instrument for increasing access to credit among the poor. (9) Empirical estimates of the collateral value of property titles in agricultural settings also corroborate the predictions of the Besley model, with respect to both credit supply and agricultural investment demand. (10)

Meanwhile, the relationship between institutional reform and household time allocation has been absent from empirical studies of property rights. This is likely due to the fact that the past literature largely has been confined to agricultural settings, while decisions related to spending time outside the community or away from residential property are most relevant to urban households. This Article complements the existing literature by considering one of the unique welfare implications of urban property titling efforts.

This Article's findings suggest that land titling is indeed associated with substantial changes in household and community time use patterns. In particular, formal property ownership is associated with a significant reduction in the amount of time household members spend inside the home, including a 48% decrease in the fraction of households that locate entrepreneurial activities inside the home and a 36% reduction in the fraction of households that report keeping individuals at home to protect property. (11) In a parallel fashion, urban land titling is also associated with a greater number of both labor and leisure hours spent outside the home: newly titled households work an average of 17% more hours

than do squatter households awaiting a title, and are also 38% more likely to participate in organized activities outside the home. (12) Finally, although household members in titled communities spend a greater number of total leisure hours in activities outside the home, they are significantly less likely to participate in the neighborhood groups responsible for public goods provision, including property allocation and protection, in informal communities. (13) Meanwhile, the number of households that have used the formal judicial system is significantly higher in titled communities. (14) All of these results suggest that households in titled communities indeed devote fewer human resources to informal property protection, both at the household and community levels.

1. CONCEPTUAL FRAMEWORK (15)

   There are three principal mechanisms by which it is assumed that individuals in informal communities devote time to increasing tenure security. First, untitled households can provide informal policing either by guarding individual properties or by participating in community enforcement efforts to protect neighborhood boundaries and individual properties from other squatters. (16) If prospective squatters seek out abandoned land, signaling that the property is occupied may deter conflicts over land or property boundaries. As the following quote illustrates, ample anecdotal evidence suggests that urban squatters are commonly constrained by the need to keep a family member at or close to home to protect against residential property invasion: "'I go to work, and my mother looks after the house,' says Alejandrina Matos Franco, who sells cassettes on the street in Lima and who worries that people could seize her house when she is away." (17)

   Second, reducing the probability of government eviction at the community level may require a critical mass of individuals squatting on neighborhood land, particularly in early stages of community formation. Finally, households may attempt to increase tenure security through formal channels by completing administrative steps to acquire land rights. In Peru, as in many developing countries, the legal process of acquiring formal property titles traditionally involved substantial monetary and time costs. According to one report, "in Peru, ... getting a deed involved 207 bureaucratic steps, divided among 48 government offices, [and] took [an average oil 43 months [to complete]." (18)

   As long as...