Development Derailed: Railroad Land Grants and Irrigation in the Western United States

Abstract

We analyze how uncertain property rights – exogenously generated by railroad land grants – stymied irrigation investment and economic development on the Western frontier. While property rights scholarship recognizes that economic development can be hindered by a lack of formal security of rights, it also recognizes property rights are often strengthened directly or indirectly by investment, making empirical identification of the effects challenging. Meanwhile, in the context of the US West, economic historians have long argued that the economic benefits of the railroads outweighed the costs of incentivizing development with federal land grants and loans. However, the way these land grants were awarded was not uniform in process or timing; we argue that uncertainty surrounding the development of the Northern Pacific in Montana created the right historical context within which to examine the effects of uncertainty to title on one costly economic activity along the frontier, irrigation development. Montana’s irrigation development generally lagged that of Colorado and we create a spatially granular data set of land patents and water rights that yields a variety of evidence that uncertainty surrounding railroad land grants in Montana specifically contributed to delaying and stunting settlement and irrigation development in the state.

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