Delegating Governmental Authority to Private Actors: Lordships, State Capacity and Development

This paper investigates the consequences of delegating governmental authority through the study of lordships, a pivotal political institution in historical Europe. I first document a negative relationship between being a seigneurial town and central state capacity in ancien-regime Spain. Then, to shed light on the causal effect, I focus on the Kingdom of Granada after its conquest by Castile in 1492. Leveraging on that the initial distribution of lordships was conditionally exogenous, I provide plausibly causal evidence on the negative effect of lordships on central state capacity. In addition, I find a non-monotonic effect on economic growth. Contrary to conventional wisdom, lordships towns did not underperform royal towns during the Ancien Régime. Yet, despite not having started with disadvantage, former lordships towns began to experience slower growth in the 1910s, translating into lower income today. Crucially, the negative effect arose when the Spanish state significantly increased its public spending and investments, suggesting that lower central state capacity can account for the lagged negative growth effect of lordships.