Property Rights on First Nations' Reserve Land
Total Page:16
File Type:pdf, Size:1020Kb
Property rights on First Nations’ reserve land⇤ Fernando M. Arag´on† Anke Kessler‡ Preliminary version: April 2017 Abstract This paper examines the economic e↵ects of existing private property rights on First Na- tions’ reserves. We focus on three forms of land tenure regimes: lawful possession, designated land, and permits. These land regimes have been used to create individual land holdings and lease out reserve land to band and non-band members. Using confidential Census micro- data and rich administrative data, we find evidence of improvements in home ownership and housing conditions, as well as increments in band’s public spending. However, we do not find significant e↵ects on household income or employment outcomes. Instead, we document a sizeable increase in non-Aboriginal population. Our findings suggest that some caution is warranted when discussing the potential economic benefits of property rights reforms for First Nations’ communities. 1 Introduction Having well-defined and strongly protected rights to personal property is widely recognized to be a key element in reducing poverty and improving standards of living.1 The link between property rights and prosperity is particularly important in indigenous communities around the world where the notion of private land rights is frequently absent (De Soto, 2001; Flanagan and Alcantara, 2003; Anderson and Parker, 2009). Canada’s First Nations are no exception: reserve land is not owned by individuals but held in trust for the benefit of band members. This communal nature of reserve land has been pointed out as a major contributor to the economic challenges faced by First Nation communities.2 This concern of weak property rights on reserve have motivated calls ⇤We thank Christoph Eder for his research assistance, and the AANDC Geomatics Services office and ILRS sta↵ for help with extracting data. We also thank seminar participants at Simon Fraser University for useful comments and suggestions. Financial support by the Social Science and Humanities Research Council (SSHRC) and by Simon Fraser University through Vice President’s A4 Grant Program is gratefully acknowledged. Remaining errors are our own. †Department of Economics, Simon Fraser University, Burnaby, British Columbia, V5A 1S6, Canada; Email: [email protected] ‡Corresponding author. Department of Economics, Simon Fraser University, Burnaby, British Columbia, V5A 1S6, Canada;; Email: [email protected] 1See Besley and Ghatak (2010)foranoverviewandadditionalreferencesontheconnectionbetweenproperty rights and economic development. 2See, e.g., Fiss (2005a, 2005b),Flanagan et al. (2010), Kline (2012), and Flanagan and Beauregard (2013)]. We use the term ‘reserve’ to denote land that has been set apart for the use and benefit of an Indian Band, as defined 1 from academics (Alcantara, 2003; Baxter and Trebilcock, 2009; Flanagan et al., 2010; Flanagan and Beauregard, 2013) and policy initiatives, such as the First Nations Property Ownership Act, aiming to reform the current land tenure regime. However, under the Indian Act (R.S.C., 1985), there are some forms of land tenure that grant private property rights over land. First, bands can allocate individual land holdings to their members. These land holdings are termed ‘lawful possessions’ and evidenced by ‘Certificates of Possession’. Second, bands can issue permits or designate land to be lease out. These tenure regimes are not the same as fee simple. However, they grant individual, excludable, and transferable interest over reserve land. The purpose of this paper is to empirically investigate the impact of these private property rights on First Nation reserve lands on economic activity. There are several channels through which private property rights can promote investment and a↵ect economic outcomes (De Soto, 2001; Besley and Ghatak, 2010). First, secure property rights can reduce expropriation risk as well as the costs of protecting property. Second, well-defined property rights facilitate the use of assets by those who can do so most productively through trade or rental. Finally, property rights improve enable borrowers to pledge their assets as collateral, and thereby relax credit constraints. This last mechanism is at the core of de Soto’s argument in favour of individuals property rights, who viewed assets that could not easily be bought, sold, valued or used an investment as “ dead capital” which fails to create value for the poor. With this framework in mind, we investigate the e↵ect of private property rights on (observ- able) measures of investment and well-being, such as housing conditions, household income, and employment. We use confidential micro-data from the Canadian Census (years 1991-2011) and administrative records on land management from the Indian Lands Registry System (ILRS). As our primary measures of private interests over parcels of reserve land, we use two indicator: share of land under lawful possession, and share of designated land and land with permits. The main empirical challenge is dealing with omitted variables that may a↵ect both economic outcomes and the use of private property: bands who already employ private forms of land tenure may arguably be di↵erent in unobserved ways from those who do not. Similarly, bands who have increased their land under private possession may be di↵erent from those who chose not to do so. We address this identification concern in two ways. First, we restrict the analysis to First Nation communities which are already using forms of land tenure that grant individual property rights, i.e, we ex- ploit variation in the intensive margin only. Second, we include band fixed e↵ects, thus e↵ectively controlling for time-invariant di↵erences between bands. Our first set of results is encouraging in that we find that increased use of lawful possession has a positive (albeit moderate) e↵ect on new construction and improvements in the quality of housing: the likelihood that an individuals lives in a dwelling in need of majors repairs falls and number of in Section 2(1) of the federal Indian Act,R.S.C.1985,c.I-5[Indian Act], the legal title to which is vested in the federal government (under Canadian law). First Nations themselves often use alternative definitions for their communities and lands. 2 recently built houses increases. These findings are consistent with the notion that private property rights give house owners an incentive to invest into their homes. Our second set of results, where we investigate the e↵ects of private property on income and labor market outcomes shows a less positive picture. We do find a small e↵ect on household income, however, further investigation shows that the increase is entirely driven by non-band members. The income of band members, in contrast, seems to be unrelated to previous increases in any form of private land tenure on First Nations’ communities. The same is true for labor market outcomes. These findings suggest that private property rights have not substantially increased economic activity on reserves. Rather, our results point to a change in the composition of the on reserve population: use of certificates of possession is associated with a sizeable increase of non- Aboriginal population. This finding is consistent, for example, with new housing developments aimed at outsiders. Finally, we use data from bands’ financial statements and water risk assessments to explore e↵ect on public spending and quality of public services. This is motivated by the observation that the band government is a major recipient of the land rents generated by leases and permits. We find a positive and significant correlation between use of private property rights and band’s per capita spending, chief’s remuneration, and quality of water. These findings are consistent with an increase in band’s revenue and improvement in housing quality. In sum, our analysis does not corroborate the idea of a ‘de Soto’ e↵ect on First Nations reserves, spurred by private property. Band members living on reserve does not seem to be obtaining significantly higher income or better employment opportunities. Instead, our findings suggest a more modest economic impact of private property rights on reserve. However, our results have three important qualifications. First, they do not mean that band members obtained no benefit. As mentioned above, housing quality and public spending seem to improve. While not increasing income, these changes might translate into better living standards. Second, our results are not representative of all bands, but only of bands already using some forms of private property rights. Finally, we examine the e↵ect of existing land regimes under the Indian Act. However, these forms of private property rights are not the same as fee simple. While providing security of tenure, existing forms of private property involve significant transaction costs. This feature may reduce their e↵ectiveness. As mentioned above, there exists an extensive literature on how property rights a↵ect economic activity and development, a full review of which is beyond the scope of the present paper. Instead, we refer the reader to Besley and Ghatak (2010) who provide a comprehensive survey of the previous literature, and the main empirical and theoretical ideas. To our knowledge, this paper is the first to empirically analyze the impact of existing forms of land tenure on First Nations reserves. Some recent contributions to the literature on Indigenous property rights and development that are most closely related to ours are Brinkhurst and Kessler (2013),