A Law and Economics Approach to Property Rights in the American West

Colin Doran

Major Professor: Thomas Stratmann, PhD, Department of Economics

Committee Members: John V.C. Nye, D. Bruce Johnsen

Vernon Smith Hall (formerly Metropolitan Building), ICES Seminar Room
April 10, 2018, 11:00 AM to 01:00 PM


This dissertation uses law and economics to study property rights in the American West. It is composed of two empirical chapters. In the first chapter, I study the costs of protecting and capturing economic rents. My application uses western state timber auctions. I hypothesize that for state-run timber auctions the winning bid price decreases when third-party property, as opposed to only state property, borders the harvest sale area. The lower winning bid price reflects an increase in the expected costs of protecting and capturing rents due to the presence of potential third-party capture. I further hypothesize that the costs of protecting and capturing rents increase with other third-party rent capture opportunities. I test this hypothesis for various competing uses of harvesting timber, such as recreational use, environmental use, and scenic views. The results from both my border and my competing use measures consistently show that when third parties affect a harvest sale, purchasers adjust their valuation according to the expected costs of protecting and capturing rents. As a result, the winning bid price falls. 

The second chapter analyzes the effect of liability assignments on valuations and prices. On two occasions in 2007, a railway company caused a fire to break out in the State of Washington. The two fires burnt down some of the neighboring property’s timber. These two incidents led to two companion court cases that made it all the way to the Washington Supreme Court. The rulings, both made on May 31, 2012, stated that the railway company, although negligent, would not be held liable for timber damages under Washington’s timber trespass statute. As a consequence of this decision, economic theory predicts a decrease in the value of timber in those areas associated with higher risk of fire, and an increase in the value of Washington railway companies. Using a triple difference model and an event study, I test and find evidence for this prediction.