Property Rights Imperfections, Asset Allocation, and Welfare: Co-Ownership in Bulgaria

This paper analyzes how imperfections of property rights affect allocation of assets andwelfare, using micro-survey data from Bulgaria. Co-ownership of assets is widespread inmany countries due to inheritance. Central and Eastern Europe offers an interestingnatural experiment to assess the effects of such rights imperfections because of the assetrestitution process in the 1990s. Bulgaria is particularly interesting because of theprominence of the co-ownership problem (about half of all land plots are co-owned),because of the strong fragmentation of land, and because of legislation providing aninstrument to separate out chosen (endogenous) versus forced (exogenous) forms of coownership.We find that land in co-ownership is much more likely to be used by lessefficient farm organizations or to be left abandoned, and that it leads to significantwelfare losses.