The Impact of Property Rights Imperfections on Resource Allocation: Co-Ownership of Land in Bulgaria

This paper analyzes how imperfections of property rights affect allocation of assetsand welfare, using micro-survey data from Bulgaria. Co-ownership of assets iswidespread in many countries due to inheritance. Central and Eastern Europe offersan interesting natural experiment to assess the effects of such rights imperfectionsbecause of the asset restitution process in the 1990s. Bulgaria is particularlyinteresting because of the prominence of the co-ownership problem (about half of allland plots are co-owned), because of the strong fragmentation of land, and because oflegislation providing an instrument to separate out chosen (endogenous) versus forced(exogenous) forms of co-ownership. We find that land in co-ownership is much morelikely to be used by less efficient farm organizations or to be left abandoned, and thatit leads to significant welfare losses.