The Impact on the Urban Environment of Incomplete Property Rights

It is generally accepted that delineating and enforcing property rights lead to a more efficient use of private property. Thai farmers with secure title, for example, are estimated to be 12-27 percent more productive than their untitled counterparts (Feder 1988). In urban areas the focus has been on the role of security of tenure in enhancing property values and incentives to invest in housing 1. While such evidence has been influential in reforming land registration systems, it may also underestimate the benefit of doing so because it does not take into account the effects on improving the provision and management of common property. For example, residents with greater security may invest more in neighborhood roads, streetlighting, community recreational facilities and overall environment than those in less secure areas. In this paper, we investigate why this may happen and provide evidence from a specific case in an urban setting-waste disposal in Indonesia. The issue is critical in urban areas because as many as one-third of urban residents in third world cities do not have fully secure property rights (Mayo). The majority of these households are poor and live in urban environments that may affect the well-being of those outside the local community 2. If improved tenure security leads to signficant own-provision and maintenance of infrastructure services in neighborhoods, then it might change the type of intervention that would be most cost-effective in internalizing neighborhood externalities-away from provision or financing of local public goods (LPGs) and towards attempts to rationalize tenure. The LPG we consider in this paper is garbage collection, which is sometimes viewed as a private good since a private sector firm would be able to collect garbage and make money upon payment by households. However, the benefit that neighbors receive from the removal of this household's garbage is not subject to price exclusion. Thus, there is both a private and a public goods or externality characteristic for garbage collection. If the private benefit to a household from having all garbage collected exceeds the cost of collection then there is no public good or external effects problem to be concerned about. As is common in developed countries, garbage collection services are financed from general tax revenues with zero marginal cost to consumers. Assuming the private benefit for collection of each unit of garbage created can be generally expected to exceed the marginal cost of zero, such a system tends to …