Abstract

The United States took control of the Philippine Islands in 1898. Four decades later, property rights in the Philippines had become unambiguously less secure: outright squatting jumped from 2.4% of farm area in 1903 to 6.4% by 1939. Most of the remaining landholders claimed to own their lands but could produce no formal title of any sort. This paper asks three questions about this puzzle: (1) Did the American authorities care about property rights? (2) Did the Filipinos care about property rights? (3) Could the incentives have been feasibly changed to improve property rights? We use the historical record to show that American authorities cared greatly about property rights. We demonstrate that Filipinos desired formal titles by constructing a model of the demand for property rights under conditions of land abundance, using that model to generate predictions about applications for title and farm investment, and showing that the data fit the predictions of the model. Finally, we demonstrate that the Philippine government could not have overcome the incentive problem by estimating a lower-bound cost of titling the island, which would have required a politically impossible level of borrowing or taxation. We conclude that the fundamental barrier to formality was the extensive frontier: with much abundant vacant land, the cost of obtaining formal property rights was greater than the benefits from greater security. As a result, informality grew under American rule.