ECONOMIC GROWTH CENTER

                       YALE UNIVERSITY

                       P.O. Box 208269
                     27 Hillhouse Avenue
                   New Haven, CT 06520-8269





               CENTER DISCUSSION PAPER NO.  788

                          UNTITLED:
        A STUDY OF FORMAL AND INFORMAL PROPERTY RIGHTS
                      IN URBAN ECUADOR



                       Jean O. Lanjouw
                       Yale University

                        Philip I. Levy
                       Yale University





                          April 1998




Note:  Center Discussion Papers are preliminary materials circulated to
       stimulate discussions and critical comments.


                                                          Draft
                                           Comments Very Welcome

                          Untitled:
        A Study of Formal and Informal Property Rights
                       in Urban Ecuador

             Jean O. Lanjouw and Philip I. Levy*

                        April 15, 1998


                           Abstract

      In this paper we explore the substitutability of formal and informal
property rights.  We analyze new survey data from Ecuador, where households
have both formal and informal claims to urban residential property.  The latter
come from a variety of sources, including the activity of a local boss, or
organizer.  We first develop a theory of the ability to sell or rent land
in which a distinction is drawn between transferable property rights (e.g.,
title) and non-transferable claims (e.g., length of residence).  We use this
theory of transactions to show that the increase in price that follows the
granting of title may be an overestimate of the households' utility gain.  In
our empirical work we find that the unconditional effect of granting title is
to raise properties' value by 23.5%. However, we also find that informal
property rights can substitute effectively for formal property rights,
so the marginal effect of titling on the ability to transact and on prices can
vary widely among communities and among households within a community. For
example, the value of property owned by a newly established household with no
adult males can increase by 46% with the acquisition of title. These findings
suggest that titling programs should be targeted at young disorganized
communities if they are to have much effect.

*Yale University.  Department of Economics. P.O. Box 208264. New Haven, CT,
06520-8264.  We would like to thank Jean-Marie Baland, Fr‚d‚ric Gaspart,
Emmanuel Jimenez, Peter Lanjouw, and Jesko Hentschel for many useful
discussion in the preparation of this work, as well as seminar participants at
the World Bank, the London School of Economics, the Vrije Universeit
(Amsterdam), Harvard/MIT and Yale. We also thank Christian Carrillo for
research assistance and GTZ (Germany), the World Bank and the Yale Center
for International and Area Studies for their financial support.
Finally, we would like to thank the large number of people in Quito and
Guayaquil who helped us with both information and logistical support, in
particular Ab. Jose Javier Varas Calvo of the M.I. Municipalidad de Guayaquil
and Arq. Alexandra Moncada of CAVIP.