Poverty from Incomplete Property Rights: Evidence from American Indian Reservations

Abstract:

Economists generally agree that more complete property rights lead to higher incomes, but rights are often constrained by other political and social goals. American Indian reservations provide a powerful example. Reservation poverty is often attributed to poor quality land as a result of expropriation and transfers to non-Indians, but a more complete explanation requires understanding how efforts to prevent further transfers shaped reservation land tenure. Under the Dawes Act of 1887, reservation lands were allotted to individual Indians, but held in trust by the federal government until allottees were deemed “competent” to hold fee-simple title. In 1934 the Indian Reorganization Act locked into trusteeship those lands that had not been released. We assess whether incomplete property rights resulting from trusteeship have affected reservation incomes using new panel data on income, land quality, and tenure. Our data reveal a U-shape between per capita income and the share of prime agricultural land on reservations. This is because reservations with relatively poor land were less likely to be allotted and, hence, remain under tribal control while reservations with high quality land were more likely to become fully privatized. Reservations with mid-quality land were allotted, but were less likely to be released from trusteeship. We conclude that incomplete property rights have stunted income growth for Native Americans, relative to local control, whether communal or private.

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