Thursday, January 09, 2003

There'd something a little odd about Princeton economist Alan Krueger devoting his whole NYT column to plugging the research of currently-on-the-job-market Princeton grad student, Erica Field-- if not for the fact that she's working on a really exciting and important topic, the impact of Hernando de Soto's land-titling reforms on labor market participation in Peru, and for the fact (not mentioned in his column, but apparent from her CV) that he's not one of her advisors.

I'm a big, big believer in de Soto's title-reform agenda for Peru and most of the rest of the developing world. As Krueger notes, the effect Field has found isn't the main one de Soto predicts. But the effects are all of a piece; property titling lends security and stability to the lives of the most vulnerable. It makes sense that protection of basic physical security and protection from invasion precede labor market entry, which in turn precedes credit market entry. More former squatters having regular and documentable sources of income now means more former squatters who make plausible mortgagors in a few years; collateral is a necessary but often not sufficient condition for credit market access, since creditors would rather know how the loan is going to be serviced than to know that they're going to end up foreclosing.

Oddly, Krueger only mentioned Peruvian government studies of the credit market access question, and he reports that there's been no evidence of an improvement yet. But Field's list of working papers includes one on this question, and while the results aren't huge, they do seem to be present.

Do Property Titles Increase Credit Access among the Urban Poor? Evidence from Peru”(with Maximo Torero, mimeo, Princeton University, September 2002)

Abstract: The Peruvian urban titling program provides a dramatic natural experiment for testing the theory that credit rationing can be remedied by strengthening institutions governing property rights and increasing the collateral value of landholdings. This paper conducts an evaluation of early program impact on the likelihood of obtaining formal credit and on the interest rate at which formal credit can be obtained. Staggered program timing within cities enables us to construct comparison groups in program and non-program neighborhoods via propensity score based on observable criteria in loan applications. We then estimate the average treatment effect of property titling on credit access using kernel-based and nearest neighbor matching methods, looking separately at the impact among commercial and non-profit lenders. Our results suggest that among non-profit lenders land titles increase loan acceptance rates by 12% but have no influence on borrowing costs. Meanwhile, loan acceptance rates of both standard commercial banks and informal lenders are unaffected by residential ownership status, although interest rates in commercial banks appear slightly lower for title-holders. We attribute this pattern to the higher profitability of small loans for microfinance lenders with localized strategies for dealing with informational and enforcement costs and to greater public sector familiarity with the government titling effort.

NB: This is not an area of academic expertise for me; I read de Soto's translated works, but those aren't pieces of technical economics. I gather that Field is among the first economists to subject the reforms to rigorous testing; I haven't read her papers, and they don't seem to have been through peer review yet. With that proviso noted, here's the paper Krueger is talking about.

UPDATE: Brad deLong is impressed with Field's work as well.

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