The Impact of Property Rights Imperfections on Resource Allocation and Welfare: Co-ownership of Land in Bulgaria

This study used a unique 2003 survey dataset to analyse the developments in land use and exchange in Bulgaria. The survey analysis yields several results. Land is highly fragmented in Bulgaria which increases the need for an efficient exchange of land between owners and users of land. However, the land sales market is not well developed. In contrast, land rental agreements are very widespread. Land rental is widely used to exchange land between owners and users of the land. The users include a variety of farm types, including cooperatives, farming companies, and individual farms. While land titles are distributed and land plots clearly defined and delineated, an important property rights problem exists under the form of so-called "co-ownership". By law, certain plots are undividable among heirs because the plot size after division would fall under the imposed minimum plot size. Our estimation results show that co-ownership has a major impact on land use and allocation. Land under co-ownership and which is undividable by law, is more likely to be left abandoned or used by large enterprises - the default users of land given the history of land use in Bulgaria - compared to owner-cultivation or renting out to another household. Our analysis shows that solving co-ownership problems would not only stimulate efficient land allocation which in turn affects the household's welfare level. Land that is cultivated by the household or rented to an other household contributes more to its welfare than land that is rented to a cooperative or left abandoned.