How Property Formalization Schemes Affect Land Tenure Security? A Game Theoretical Perspective

Abstract

Game theory modeling of the evolution of property rights has paid little attention to the issues of formalization of property rights in land. In developing economies where customary legal arrangements are pervasive, formalization of these rights can play a crucial step in unlocking the growth potential of the local economy. However, there is evidence that the interaction between the newly introduced formalization mechanism and the existing customary system can instead, create further land tenure insecurity. I develop the hawk-dove model to include the choice of formalization of property rights. The model shows that a newly introduced formalization mechanism can lead to a secure system of land tenure if (1) it is effective enough for the parties that register unilaterally to fully capture the original value of the plot and (2) sufficiently harshly punishes those that take an aggressive stance towards the registering party (3) and signals that possession will be decisive if multiple parties attempt to register the same plot. Furthermore, depending on the height of the fees of adjudication when both parties attempt to register the same plot, the English Rule (i.e. shifting the court fee to the loosing party) can incentivize parties to engage in registration selectively. Finally, the attractiveness of registration will rarely diminish even if the cooperation within a customary system is highly beneficial, thus sometimes leading to suboptimal outcomes.