For economic transactions, including debt transactions, to occur in a market system, property rights are essential. The literature has focussed on finding empirical proof of the effect of property right regimes, noting differences between de jure and de facto property rights. Yet most of these studies focus on macroeconomic outcomes, like economic growth and public expenditure. We propose, instead, to use individual debt transactions and property ownership available in probate inventories from early colonial South Africa to investigate the effects of property right regimes on economic outcomes at the individual level. At the Cape, de jure property rights between freehold and loan farms differed. Historians, however, suggest that de facto property rights between these two property types were the same. We exploit the random variation of birth order, specifically being the oldest son, to estimate whether the type of farm, and therefore the type of property rights, matter for economic activity, in our case, debt transactions. Our results suggest that historians were correct: loan farms were as secure in their de facto property rights, despite differences in de jure property rights. Our results confirm that the local context in which property right regimes are embedded are at least as important as the property right regime itself.
Why local context matters: de jure and de facto property rights in colonial South Africa
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