Land Value Taxation: A Spatially Explicit Economic Experiment with Endogenous Institutions

An economic experiment with endogenous institutions informs the political economy of land value taxation relative to uniform property taxation in terms of efficiency and sprawl reduction. Heterogeneous type distributions were used so that land value taxation was earnings-rational, relative to uniform property taxation, for 40, 60, and 80 percent of the participants. The model’s induced values predict land value taxation leads to less sprawl, more earnings, and more tax revenue than uniform property taxation. Experimental data do not consistently match this prediction, where both tax institutions led to more sprawl and lower earnings than predicted. Results show participants voted for the tax institution that does not maximize their individual earnings in 16.7 percent of rounds. These earnings-irrational choices occurred when the type distributions were 40 and 60 percent in favor of land value taxation. The experiment results nonetheless show the absolute advantage of land value taxation for producing less sprawl, more tax revenue, and more earnings. Moreover, the behavioral evidence suggests that relative advantage of land value taxation in reducing sprawl is greater than predicted by the model. This suggests further inquiry about whether land value taxation promotion activities may best be targeted towards cities using uniform property taxation where economies are vibrant, land uses are already relatively intensive, and greater-than-average population density already exists.

What Can the Endogenous Institutions Literature Tell Us About Ancient Rome?

A large and growing literature on “endogenous” institutions seeks to understand the circumstances under which institutions of particular types arise. One of the literature’s guiding principles is that, because institutions structure the incentives that members of a society face, if institutions are not well matched to a society’s circumstances—that is to say, not designed to inspire productive activities, broadly defined—the society will not thrive. We will discuss how this approach can help modern scholars understand the institutions of the Roman Empire, a society that clearly did thrive. The focus of this paper will be on the Roman imperial government’s policies that promoted the private ownership of land. These policies were crucial to the efforts of the Roman imperial government to create a class of landowners in the cities across the empire who would share in the burdens of ruling the empire. However, the extent to which landowners could dispose of their properties freely was limited by the overall constraints of an ancient agrarian economy and the fiscal requirements of the Roman state.

Universal Building Blocks

This chapter argues that a number of precursor institutions of the long-distance trade organization developed locally, independently, and endemically in many different places along the Eurasian landmass. It shows that there is often no direct and clear evidence for the endogenous origins of institutions. The chapter also discusses the endemic appearance of an institution that does not have a clear pattern of migration but, together with its relatively simple structure, supports the identification of an endogenous institution. Endogenous institutions are often organic, as is the case with the itinerant trader or the family, or simple institutions that address basic functions, such as the loan, agency, or ship. They are to be found throughout Eurasia, and there is no historical evidence of a single historical origin for any of them or of a clear route of their migration.

Varying Organizational Building Blocks

This chapter presents theoretical insights that can be gained from other fields and disciplines that can be useful for the study of the migration of institutions and particularly trade organizations. It analyzes more complex, and somewhat more socially and culturally embedded, organizational forms, such as the sea loan, the funduq and caravanserai, and the commenda. The chapter also describes three key organizational forms rather than offering a comprehensive survey of all migratory organizational forms. Some organizational forms, such as the general partnership or the joint ownership of ships, are more complex than typical endogenous institutions and are likely to be migratory. It explains how an objection to an institution could lead to mutations and efforts to hide the foreign or objectionable origins, as well as to fit the institution into pre-existing institutional configurations.

ECONOMIC GROWTH WITH ENDOGENOUS ECONOMIC INSTITUTIONS

Unlike most existing studies on the endogenous institutions, literature on theoretical growth has traditionally considered institutions as exogenous. In this paper, a learn-by-doing-based growth model is adopted and integrated with endogenous institutions to study how economic agents’ incentives engage in institutional improvements or exploit institutional imperfections. From maximization of identical agent utility, the economic growth model includes capital, labor, technology, and institutions. The study is to analyze the effect of institutions on the stability of equilibrium, balanced economic growth path, and convergence rate in the process of economic growth. It is concluded that, firstly, improving institutions is a decisive factor for China’s high economic growth rate for the past years; secondly, improving institutions can increase the capital stock per unit of effective labor in steady state; thirdly, imperfect institutions can explain income difference among countries; and finally, technology plays a key role only under the conditions adapting to institutions.