Abstract
This paper examines the economic effects of a natural experiment in land demarcation in 19th century California. Land demarcation occurs in two dominant forms: metes and bounds (MB) and the rectangular system (RS). In MB individuals claiming and specification of land parcels, while in the RS land is surveyed and demarcation prior to settlement and is organized in uniform grid of square plots. It is hypothesized that the RS reduces transactions costs and creates a coordinating network among participants in a land market, thereby leads to a more efficient land market. A simple model of farmland value predicts that RS areas have higher farmland values per acre and create more incentives to invest in the land. We use farm-level data from the 1860 Agricultural Census, for California regions where both MB and RS are found, to test these and related predictions. It is found that farmland values per acre are lower and there is less incentive to invest in the land in MB regions compared to RS regions.
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