LAND TENURE AND AGRICULTURAL

PRODUCTIVITY ON INDIAN
RESERVATIONS*
TERRY L. ANDERSON and DEAN LUECK
Montana State Louisiana State
University University

I. INTRODUCTION

A GRICULTURAL success stories are the exception on Indian reserva-

tions, where potentially productive land often sits idle, growing weeds
and eroding. Despite abundant natural resources, including land, timber,
wildlife, and energy, reservation Indians remain among the most impover-
ished of Americans. The 1980 census showed that 14 percent of Indian
households on reservations had incomes of less than $2,500 per year,
compared with 5 percent for the overall U.S. population. At the other
end of the income distribution, only 6 percent of reservation households
had incomes greater than $30,000, compared with 20 percent for the na-
tion as a whole.1
Explanations of low agricultural productivity on reservations have fo-
cused on insufficient physical and human capital, poor land quality, and
lack of motivation, but little attention has been given to institutions. Dis-
missing a lack of human capital as the reason for Indian cattle-ranching
inefficiency, Ronald Trosper concluded that "land tenure or other institu-

* We thank Doug Allen, Yoram Barzel, Dick Butler, Rod Fort, Ron Johnson, Val Lamb-
son, Mike Ransom, Randy Rucker, and participants in several seminars for their comments
on earlier versions. Chris Diener, Pam Gregg, Laura Smith, and Scott Wood provided
valuable research assistance. Bob Swick, Hank Kipp, and Howard Piepenbrink of the
Bureau of Indian Affairs helped us obtain data and understand Indian land-tenure arrange-
ments. The M. J. Murdock Trust, the Charles Redd Foundation, and the Earhart Foundation
have provided financial support through the Political Economy Research Center, at Boze-
man, Montana.
Peter P. Dorner, Needed: A New Policy for the American Indian, 37 Land Econ. 162
(1961); and Alan L. Sorkin, American Indians and Federal Aid (1971), came to similar
conclusions for earlier periods.
[Journal of Law & Economics, vol. XXXV (October 1992)]
? 1992 by The University of Chicago. All rights reserved. 0022-2186/92/3502-0002$01.50

427

This content downloaded from 144.173.006.094 on May 06, 2020 08:37:31 AM

All use subject to University of Chicago Press Terms and Conditions (http://www.journals.uchicago.edu/t-and-c).
428 THE JOURNAL OF LAW AND ECONOMICS

tional problems" should be examined as the possible explanation.2 More

recently, the Department of the Interior (DOI) Task Force on Indian
Economic Development found that the Bureau of Indian Affairs' (BIA)
trust role over Indian lands "creates complications for efforts to promote
the development of the business sector on Indian reservations."3 Even
the subpar performance of Alaska's "native corporations" has been re-
lated to institutional constraints on transferability of shares.4
While no studies have directly examined the effect of reservation land
ownership on productivity, economists have addressed this issue in the
context of developing countries. For example, Gershon Feder and Ton-
groj Onchan have shown that insecure title and restrictions on transfer-
ability in Thailand reduce agricultural productivity by limiting farmers'
access to capital.5 Elsewhere, Feder concluded that land tenure incen-
tives underlie "the productivity gap between the titled and untitled
farmers."6
Since reservation boundaries encompass a variety of tenures, they of-
fer an ideal opportunity for cross-sectional analysis of the relationship
between tenure and agricultural productivity. After describing the various
tenure arrangements on Indian reservations, we use regression analysis
to test the proposition that constraints inherent in the federal govern-
ment's trust authority over Indian lands reduce the value of agricultural
output per acre on Indian trust lands relative to private lands.

II. LAND TENURE ON RESERVATIONS

It is common to think of an Indian reservation as a homogeneous land-

tenure unit controlled by the tribe, but actually reservations are a mosaic
of four land tenures-fee simple, individual trust, tribal trust, and feder-

2 Ronald L.
Trosper, American Indian Relative Ranching Efficiency, 68 Am. Econ. Rev.
503, 514 (1978).
3 U.S.
Department of the Interior, Report of the Task Force on Indian Economic Devel-
opment 239 (1986) (hereinafter DOI).
4 See Jonathan M. Karpoff & Edward M. Rice, Organizational Form, Share Transferabil-
ity, and Firm Performance: Evidence from the ANCSA Corporations, 24 J. Fin. Econ. 69
(1989).
5 Gershon Feder &
Tongroj Onchan, Land Ownership Security and Farm Investment in
Thailand, 69 Am. J. Agric. Econ. 311 (1987).
6 Gershon Feder, Land
Ownership Security and Farm Productivity: Evidence from Thai-
land, 24 J. Dev. Stud. 16, 29 (1987). Anthony Bottomley, The Effect of the Common
Ownership of Land upon Resource Allocation in Tripolitania, 39 Land Econ. 91 (1963);
Arthur DeVany & Nicolas Sanchez, Land Tenure Structures and Fertility in Mexico, 61
Land Econ. 67 (1979); and Omotunde E. G. Johnson, Economic Analysis, the Legal Frame-
work, and Land Tenure Systems, 15 J. Law & Econ. 259 (1972), are other studies that
examined the effects of alternative land-tenure systems.

This content downloaded from 144.173.006.094 on May 06, 2020 08:37:31 AM

All use subject to University of Chicago Press Terms and Conditions (http://www.journals.uchicago.edu/t-and-c).
 LAND TENURE AND PRODUCTIVITY 429

ally owned. The last category, which constitutes only 2 percent of Indian
lands, is used mostly for administrative purposes or national monuments
and is therefore ignored in our analysis of agricultural productivity. This
mosaic can be traced to the General Allotment (Dawes) Act of 1887 that
authorized the president of the United States to have Indian land sur-
veyed and allotted to individual Indians.7 Like homesteaders, Indians
could choose their allotment, but, if they did not select land within four
years after a reservation was designated for allotment, a BIA agent would
select a plot on their behalf. The land, however, was held in trust by the
government for twenty-five years or until the individual Indian was
deemed "competent," during which time it could not be alienated or
encumbered by taxes, liens, or other legal devices.8
When the allotted land was released from trust constraints, it was with-
drawn from tribal and BIA control and became private (fee-simple) land.
Once released from trust status, an allotment could be and often was sold
to non-Indians. In addition, some lands not allotted became "surplus"
lands that were available for homesteading by non-Indians. For these two
reasons, millions of acres of fee-simple land currently exists within the
boundaries of Indian reservations.
In 1934, the Indian Reorganization Act ended allotment and perpetu-
ated federal trusteeship over vast acres of individual Indian and Indian-
nation lands. Much of the land that had been allotted by 1934 remains
owned by individual Indians but is subject to trust constraints regarding
alienation, leasing, and encumbrance.9 Those lands that had not been
allotted or homesteaded plus the land added to the reservations since
1934 or acquired by Indian nations from individual holdings are owned
by the tribe and generally held in trust by the federal government. Indian-
nation control today should not be confused with communal ownership
prior to reservations. Before white settlement of the plains, nations typi-
cally controlled large hunting territories, keeping competing tribes out,

7 See Felix S. Cohen, Handbook of Federal Indian Law

(1942); and Frncis Paul Prucha,
The Great Father: The United States Government and the American Indians (1984), for the
details of allotment. See also Fred S. McChesney, Government as Definer of Property
Rights: Indian Lands, Ethnic Externalities, and Bureaucratic Budgets, 19 J. Legal Stud.
297 (1990), for a discussion of how the Dawes Act and the Indian Reorganization Act
increased the budgets of the BIA.
8 The act was amended in 1901 to allow
leasing of allotted lands.
9 Actually, title can be held by individuals, in which case it is
legally referred to as
restricted fee, or title can be held by the U.S. government, in which case it is referred to
as trust allotted. Moreover, though it is uncommon, individual trust land can be released
from trust status and made fee simple. For a discussion of the different types of individual-
trust or restricted-fee lands, see National Congress of American Indians, Heirship: A Short
Report (1968). For details, see 25 C.F.R. 162 (1989).

This content downloaded from 144.173.006.094 on May 06, 2020 08:37:31 AM

All use subject to University of Chicago Press Terms and Conditions (http://www.journals.uchicago.edu/t-and-c).
430 THE JOURNAL OF LAW AND ECONOMICS

but strong central authority was uncommon.'l Within the larger territo-
ries, smaller bands usually had hunting rights that might or might not be
shared with others. Today, tribal control is generally much more central-
ized and therefore subject to politics and bureaucratic control."
These three tenure types have significantly different constraints on land
use and alienation. Fee simple has the fewest constraints since it can be
freely alienated by sale, lease, or inheritance and can be legally encum-
bered. Even though it is within the reservation, control of fee-simple
land by the federal government or Indian nation is governed by the U.S.
Constitution and confined to typical regulatory powers such as zoning.
Table 1 shows the acreage in these three tenure classes for a sample of
thirty-nine western reservations.12 Of the reservation land in our sample,
approximately 45 percent is fee, owned by either Indians or non-Indians,
37 percent is tribal trust, and 18 percent is individual trust.'3
Compared to fee-simple land, the use and alienation of Indian land,
both individual and tribal, is constrained by the trustee role of the federal
government. Ultimately, the secretary of the interior has regulatory con-
trol regarding leasing, alienation, inheritance, and encumbrance of these
lands. Unlike fee-simple tenure, where owners can rearrange property
rights to maximize rents, individual Indian and tribal land-use decisions
are subject to trust oversight by the BIA. For example, an Indian who
wants to lease his or her land must seek approval from BIA authorities.
The local BIA agent, the area office, and finally the secretary of the
interior must be sure that the terms of the lease guarantee "fair annual
rental," that all owners of the land agree to the lease, and that other
regulatory terms are met. Typically this process takes three to six months
each time a lease is renewed.
The National Indian Agricultural Working Group (NIAWG) concluded
that such restrictions have "resulted in the complete loss of income to
Indian landowners when their land sits unleased due to the lack of flexi-
bility in determining rental rates. Additional landowner losses accrue
when idle farmlands become infested with weeds, reducing their produc-

10
Angie Debo, A History of the Indians of the United States 3-18 (1989).
n See Imre Sutton, Indian Land Tenure (1975), for an excellent
bibliography on Indian
land tenure; and see Leonard A. Carlson, Indians, Bureaucrats and Land: The Dawes Act
and the Decline of Indian Farming (1981), for a more complete discussion of land tenure
before allotment.
12 Even
though there are over 300 reservations in the United States, our sample focuses
on only the largest ones with significant agricultural output. Because the majority of the
reservations are very small, our sample contains over 60 percent of all Indian trust land.
13Total area is 35,844,558 acres, tribal trust is 13,110,421 acres, individual trust is
6,463,959 acres, and fee simple is 16,270,169 acres.

This content downloaded from 144.173.006.094 on May 06, 2020 08:37:31 AM

All use subject to University of Chicago Press Terms and Conditions (http://www.journals.uchicago.edu/t-and-c).
 LAND TENURE AND PRODUCTIVITY 431

tivity and the possibility of obtaining a lease."'4 Regulations that limit

the terms of leases also reduce agricultural productivity by not allowing
sufficient time for amortization of commercial credit and thus "contribute
to the generally undercapitalized condition of Indian agricultural opera-
tions." 5
While individual-trust lands can be mortgated, encumbrance restric-
tions limit the use of land as collateral. A mortgagee of individual-trust
land receives an "assignment of income" rather than a claim against a
deed. This means that, if an Indian borrower defaults, the mortgagee has
a claim on the income from the property and therefore may be able to
say how the property is used, but obtaining title to the land is very diffi-
cult. Since foreclosure proceedings typically go through tribal courts,
uncertainty for the mortgage holder is increased.16 This effectively raises
the costs of capital on individual Indian trust land.17
Not surprisingly, such constraints led the Presidential Commission on
Indian Reservation Economies to conclude that trust status is "an obsta-
cle to economic development from the perspective of collateral for fi-
nancing. ... It also means that capital which they already have cannot
be flexibly used for tribal investment. Trust status freezes tribal assets
in a pre-capitalist state."18 The NIAWG came to a similar conclusion.
"Constraints and regulations imposed by the various laws and regulations
pertaining to the Federal Government's trust responsibility, and the Sov-
ereignty of Tribal Government, result in increased costs to lending institu-
tions, reduced loan security, and increased administrative workloads.
The jurisdictional issues associated with foreclosure or collection proce-
dures are . . . not clearly defined. This has the effect of further reducing
the confidence of these lenders. Lending institutions are reluctant to
make loans to Indian operators because foreclosure procedures may lie
with tribal jurisdictions.""19
In addition to constraints on leasing, alienation, and encumbrance, the

14 U.S.
Department of the Interior, Bureau of Indian Affairs, Findings and Recommenda-
tions of the National Indian Agricultural Working Group 27 (1987) (hereinafter BIA).
15 Id. at 28.
16
For a discussion of how tribal courts increase uncertainty, see J. O. Mudd, Jurisdiction
and the Indian Credit Problem, 33 Mont. L. Rev. 307 (1972).
17
Offsetting this capital constraint is the fact that the federal government provides some
capital explicitly for Indian agriculture. Since we have no data on the availability of this
capital, our estimate of the effect of higher contracting costs on agricultural productivity
will be biased downward.
18 Presidential Commission of Indian Reservations, Report 31 (1984).
19 BIA, supra note 14, at 37.

This content downloaded from 144.173.006.094 on May 06, 2020 08:37:31 AM

All use subject to University of Chicago Press Terms and Conditions (http://www.journals.uchicago.edu/t-and-c).
 TABLE 1
ACREAGE IN VARIOUS OWNERSHIP CLASSIFICATIONS FOR SELECTED RESERVATIONS

State and Reservation Total Acres* Tribalt Individual Trust Fee Simplet
Washington:
Colville 1,367,761 1,028,339 39,940 299,475
Yakima 1,402,469 918,544 222,937 260,965
Oregon:
Umatilla 174,800 19,273 68,612 86,792
Warm Springs 659,012 587,794 51,105 15,441
Idaho:
Fort Hall 522,600 269,655 220,313 0
Coeur d'Alene 345,750 22,470 39,237 284,043
Nez Perce 805,815 36,949 47,244 721,612
Montana:
Blackfeet 1,546,950 312,879 628,822 605,113
Crow 2,347,177 414,263 1,095,313 836,140
Flathead 1,287,941 609,365 42,640 635,213
Rocky Boy's 127,235 108,325 0 18,910
Ft. Peck 2,162,288 395,703 510,093 1,246,492
Northern Cheyenne 471,415 321,363 145,585 34,466
Wyoming:
Wind River 2,195,940 1,794,758 93,413 306,473
North Dakota:
Ft. Berthold 797,505 70,997 351,469 374,875
Standing Rock 2,306,098 356,037 441,211 1,508,850
Ft. Totten 255,203 16,228 36,635 202,172
South Dakota:
Cheyenne River 2,872,342 959,687 444,901 1,435,993
Crow Creek 310,293 65,018 60,425 184,850
Lower Brule 245,956 106,135 22,597 112,694
Pine Ridge 2,779,200 708,559 1,070,050 998,263
Rosebud Sioux 1,624,202 529,954 429,575 664,631
Yankton 406,045 16,706 19,852 369,487
Sisseton 978,465 17,544 90,518 870,112
Nebraska:
Omaha 186,591 9,596 17,196 159,799
Santee 111,844 6,943 2,415 102,486
Winnebago 111,876 4,321 23,282 84,273
Minnesota:
Fond du Lac 78,958 4,701 16,185 57,940
Arizona:
Colorado River 269,918? 264,048 5,870 0
Gila River 347,474 296,128 97,642 18
Nevada:
Duck Valley 289,819? 289,819 0 0
Walker River 323,406 313,690 8,572 8,752
Utah:
Goshute 109,293? 109,293 80 0
Uintah and Ouray 4,337,393 1,007,278 14,278 3,315,795
New Mexico:
Isleta Pueblo 211,071 211,037 0 36

This content downloaded from 144.173.006.094 on May 06, 2020 08:37:31 AM

All use subject to University of Chicago Press Terms and Conditions (http://www.journals.uchicago.edu/t-and-c).
 LAND TENURE AND PRODUCTIVITY 433

TABLE 1 (Continued)

State and Reservation Total Acres* Tribalt Individual Trust Fee Simplet
Colorado:
Southern Ute 629,313 307,562 2,408 316,241
Ute Mountain 597,073 588,495 8,578 0
Oklahoma:
Kickapoo 13,696 3,659 3,124 6,913
Osage 1,435,114 734 169,485 1,264,895
SOURCES.-See the Appendix.
* Estimated from reservation maps using a computerized planimeter-a device that scans maps and
measures areas. For reservations where all land is held in trust, total acres are calculated as the sum of
all trust lands. Total acres do not necessarily equal the sum of the three classes of ownership because
the categories of government and other are not included. See discussion in text.
t Taken from the 1987 Natural Resource Information System (NRIS) data collected by the BIA.
t Difference between total acres and total NRIS acres.
? In cases where it is known that there is no fee-simple ownership, total acreage is calculated as the
NRIS estimate of total Indian land.

trust status of Indian land tends to fractionate ownership, thereby raising

the cost of obtaining agreement among all owners and reducing the stake
each individual owner has in land-use decisions. Limitations on inheri-
tance are the main cause of fractionation under individual-trust tenure.
The Allotment Act of 1887 specified that, when an allottee died before
being granted fee patent, an allotment could not be willed but had to pass
to the heirs according to state rules of inheritance where the land was
located.20 Though this was changed in 1964 to allow estate inheritance
through a will, the will may be set aside if the decedent's family is not
included.21
After several generations of inheritance, "allotments are held by so
many owners in common that the Indians are helpless to make effective
use of their property. Unless this pattern can be reversed, all Indian
allotments inevitably will have an astronomical number of owners."22
Alan Sorkin further noted that "[i]t will be impossible to solve the prob-
lem of land use on many reservations until the heirship problem is
solved."23 A congressional study of heirship in 1960 showed nearly 12
million acres of allotted lands in heirship status, with half of that owned
by six or more heirs. The story told by one allottee dramatically illustrates

20 For discussions of the heirship problem, see William H. Gilbert & John L. Taylor,
Indian Land Questions, 8 Ariz. L. Rev. 102 (1967); and Ethel J. Williams, Too Little Land,
Too Many Heirs-the Indian Heirship Land Problem, 46 Wash. L. Rev. 709 (1970).
21 See 25 U.S.C.A. ?? 348, 373 (1964).
22 Gilbert & Taylor, supra note 20, at 710-11.
23
Sorkin, supra note 1, at 71-72.

This content downloaded from 144.173.006.094 on May 06, 2020 08:37:31 AM

All use subject to University of Chicago Press Terms and Conditions (http://www.journals.uchicago.edu/t-and-c).
434 THE JOURNAL OF LAW AND ECONOMICS

the problem. "My sister's allotment was 80 acres. She dies and my dad,
a white man, was willed the land. He dies and all his children fell heir.
His share was 13440/20160. We had that probated in court-four chil-
dren's share is 960/20160, and cousins one share 270/20160, one share
305/20160, five shares 128/20160, one share 320/20160, one share 140/
20160, seven shares 35/20160 and these last seven are no relation only
that this man was once a brother-in-law and they are the ones that won't
sign so that we can have a hundred percent signers [the requirement for
sale or lease of allotments]."24
The fractionation of ownership caused by heirship is often cited as a
reason for reduced agricultural productivity. Since leasing and other land-
use decisions require unanimous agreement by all shareholders, costs of
negotiating leases can be prohibitive.25 As a result, "undivided heirship
lands sit idle and become infested with weeds or other pests because the
large number of landowners are unable to agree on or directly negotiate
a lease, and the Bureau lacks specific authority to negotiate or lease on
their behalf."26
Land-use decisions regarding tribal-trust lands are even more complex
than for individual-trust lands. Tribal-trust land is subject to BIA trust
constraints regarding leasing, but further tribal controls often restrict
leasing to members of the tribe. Moreover, tribal-trust land cannot be
mortgaged, making it nearly impossible to obtain private financing for
tribal projects. Since tribal land-use decisions are governed by tribal
councils, politics plays a crucial role in land-use decisions. A description
of the Rocky Boy's Reservation in Montana states that "almost all in-
come and goods pass through the tribal government."27 Under such con-
ditions, constitutional constraints on government are crucial to prevent
rent seeking.28 Efforts since the 1930s to adopt tribal constitutions and
thus constrain tribal governments, however, have met with little success.
The "loose and elusive nature" of tribal government exacerbates the
negative effect of tribal control on land-use decisions.29 Tribal ownership
and control can overcome the heirship problems inherent with individual
trust, but rent seeking by both whites and Indians often dominates reser-

24 U.S. House of
Representatives, Committee on Interior and Insular Affairs, 86th Cong.,
2d Sess., 1 Indian Heirship Land Study 463 (1960).
25 See 25 C.F.R.
?? 162.1, 162.2, 162.3, and 162.4.
26
BIA, supra note 14, at 25.
27 James J.
Lopach, Margery Hunter Brown, & Richmond L. Clow, Tribal Government
Today: Politics on Montana Indian Reservations 143 (1990).
28 James M.
Buchanan, The Limits of Liberty: Between Anarchy and Leviathan (1975).
29 Leonard S.
Fonaroff, Political Process and Cultural Change among the Navaho, 61
Geographical Rev. 442, 444 (1971).

This content downloaded from 144.173.006.094 on May 06, 2020 08:37:31 AM

All use subject to University of Chicago Press Terms and Conditions (http://www.journals.uchicago.edu/t-and-c).
 LAND TENURE AND PRODUCTIVITY 435

vation politics. Not surprisingly, corruption like that found on the Navajo
Reservation can result.30 Hence, tribal lands often sit idle or at best are
used for grazing, one of the lowest-valued land uses.

III. COSTSAND TENURE

CONTRACTING

The effects of the various Indian land-tenure arrangements on leasing,

capital investment, fractionation, and political governance can be exam-
ined under the general rubric of contracting costs. For example, while
leasing under BIA trust authority may guarantee "fair annual rental," it
also increases the time it takes to get a lease approved. Similarly, con-
straints on alienation and encumbrance of Indian lands raise the cost of
contracting for capital because collateral generally must come in some
form other than land. Fractionation directly increases contracting costs
by increasing the number of owners who must come together to make
decisions regarding land use. And, finally, the high costs of specifying
constitutional contracts make it difficult to structure tribal governments
in ways that encourage efficient land management.
To understand the effect of these higher contracting costs on agricul-
tural output, we compare the land-use decisions on fee-simple land and
trust land. In both cases, we assume that the value of output per acre is
a function of labor and capital and that decision makers employ these
inputs so as to maximize the land's rental value. Since tenure constraints
affect the costs of these inputs, however, employment of both labor and
capital will vary systematically with tenure rules. Because fee-simple
tenure has fewer constraints on alienation and encumbrance, we take
the employment of labor and capital on fee-simple lands as optimal and
compare the per-acre value of agricultural production under trust tenure
to this norm.
Given the tenure constraints described above, we hypothesize that the
value of output on trust lands, ceteris paribus, will be lower than the
value on fee-simple lands for the following reasons.

A. Higher Capital Costs

Constraints on alienation and encumbrance raise capital costs relative
to fee-simple lands and thus reduce capital investment. Insecure land
ownership reduces access to capital, especially that provided through
formal capital markets, and thereby reduces agricultural productivity per

30
See Chuck Cook, Mike Masterson, and Mark N. Trahant, Fraud in Indian Country:
A Billion Dollar Betrayal, Ariz. Republic, October 4-11, 1987.

This content downloaded from 144.173.006.094 on May 06, 2020 08:37:31 AM

All use subject to University of Chicago Press Terms and Conditions (http://www.journals.uchicago.edu/t-and-c).
436 THE JOURNAL OF LAW AND ECONOMICS

acre.31 While security of ownership is not a problem on Indian trust lands,

the higher cost of foreclosing on trust land taken as collateral raises the
cost of capital.

B. Fractionation of Ownership
We also expect fewer labor inputs, especially for management, on trust
land because each individual's share of rents will be smaller due to frac-
tionation of individual-trust lands or collective ownership of tribal-trust
lands. In effect, the marginal product of additional labor effort supplied
by an individual will be shared with other owners. Zero transaction costs
would enable owners to contract around this problem, but the continued
existence of fractionation suggests that they have been unable to.

C. Suboptimal Farm Size

Higher contracting costs also reduce agricultural productivity by keep-
ing leases of Indian land smaller than optimal. This "scale effect" results
because allotments under the Dawes Act were generally smaller than
today's optimal size of agricultural organization. Originally, allotments
were 160 acres per Indian family, but, in arid regions, this was increased
to as much as 640 acres. Where original reservation acreage was insuffi-
cient to allow 160 acres or larger allotments, allotted parcels were as
small as ten acres. For example, at the Pima Agency in 1967, a majority
of allotment tracts ranging from five to twenty acres had irrigation water
available, but "approximately 50 percent of the allotted land base under
this jurisdiction [was] classified as underdeveloped desert land with little
or no usage" because of the scale effect.32 For reservations in our sample,
the ratio of allotment size to current average farm size on private land (a
measure of optimal farm size) is always less than .35.
If the costs of contracting were zero, initial allotment size would make
no difference because leasing could be used to achieve the optimal farm
size. The BIA's supervision and approval of leasing and land-use plans
combined with the fractionation problem, however, make the costs of
such contracting systematically higher for trust lands. Thus, a corollary
is that trust farms will be smaller than fee-simple farms.

D. Crop Switching and Underutilization of Land

Higher contracting costs under trusteeship can cause crop switching
that, in its extreme form, means some potential agricultural land will
31 Feder, supra note 6; and Feder & Onchan, supra note 5.
32 Gilbert &
Taylor, supra note 20, at 123.

This content downloaded from 144.173.006.094 on May 06, 2020 08:37:31 AM

All use subject to University of Chicago Press Terms and Conditions (http://www.journals.uchicago.edu/t-and-c).
 LAND TENURE AND PRODUCTIVITY 437

remain idle. Cropping decisions to maximize land rents require a compari-

son of the crops' value relative to production costs including all con-
tracting costs. Where inputs and outputs are shared among multiple own-
ers as they often are on trust lands, switching to crops with lower costs
of monitoring both input contributions and output sharing can increase
rents.
Consider cattle grazing, which is less capital intensive than cultivating
crops. Even with common land ownership, access to grazing land is easily
monitored so that rent dissipation is limited. Moreover, with exclusive
rights to each animal, the costs of shirking in the production process are
borne more directly by the cattle owners. For example, crop switching
due to different tenure constraints is found in Tripolitania, Libya, where
higher-valued, more capital-intensive almonds and dates were grown on
private land and lower-valued, less capital-intensive cattle were grazed
on common land.33 We predict that less trust land relative to fee-simple
land will be devoted to higher-valued agricultural outputs that require
more capital investments and additional monitoring in the production
process.
Whether land is brought into production at all will also depend on the
potential value of production less all costs (including contracting costs).
If positive rents exist after higher contracting costs on trust lands are
incurred, land will be brought into production. If the output value is low
relative to the contracting costs, however, it may not be worth undertak-
ing any production, and land will remain idle.
A combination of these four contracting-cost effects will adversely af-
fect agricultural productivity on Indian trust land. If Indian farmers em-
ploy less capital and labor, if farm size on trust land is less than optimal,
if fewer acres of trust land with agricultural potential are cultivated, and
if those acres that are cultivated produce less valuable output than com-
parable fee-simple land, we expect that the value of output per acre on
Indian trust lands will be less than the value of output on comparable
fee-simple lands.

IV. SPECIFICATION
OF THE MODEL
To understand the effect of tenure on agricultural productivity, con-
sider the ratio of VR, the average value of agricultural output per acre on
a reservation, to VF, the average value of agricultural output per acre
on fee-simple land. (For a complete definition of all variables, see the

33 Bottomley, supra note 6.

This content downloaded from 144.173.006.094 on May 06, 2020 08:37:31 AM

All use subject to University of Chicago Press Terms and Conditions (http://www.journals.uchicago.edu/t-and-c).
438 THE JOURNAL OF LAW AND ECONOMICS

Appendix.) A linear statistical model that can be estimated is

VR/VF = XlX + X2 + X3 y + e, (1)
where X1 is a vector of ones, X2 is a matrix of reservation tenure charac-
teristics (by reservation), X3 is a matrix on nontenure characteristics or
control variables (by reservation), oa is an intercept (scalar), ( and y are
vectors of coefficients, and e is a vector of normally distributed error
terms.
Our hypothesis is that VRIVF will decline as the fraction of reservation
farmland in trust status increases. In the simplest case, where only the
fractions of reservation farmland in individual and tribal trust are used
as independent (tenure) variables, the intercept, ac, is expected to equal
one, and the tenure coefficients, 3, are expected to be negative. Under
this specification, the tenure coefficients can be interpreted as the per-
centage difference in output value between trust land and private land.
To illustrate, recall that VRis the value per acre for all potential agricul-
tural land on the reservation (as opposed to just trust land) and that it
includes per-acre values from both fee-simple and trust land. Denote VF,
VTT, and VIT as the output values per acre for fee-simple, tribal trust, and
individual trust lands, respectively. Letting Ff, FTT, and FIT be the frac-
tion of reservation land in the three categories, VRIVF can be rewritten
as
VR VFFF + VTTFTT + VITFIT
VF V=F (2)

It is important to note that the ratio, VR/VF, cannot be calculated in

this way because VIT and VTT are not separable in the Natural Resource
Information System (NRIS) data.34 Regression analysis of an equation
like (1), however, does allow us to impute values for VTT and VIT based
on the following equation:
VFFF + VTTFTT + VITFIT
VFF
VF ++
VF VF- t + yTTFTT + YITFIT. (3)

Rearranging the left-hand side of (3), noting that FF = 1 - FTT - FIT,

gives

FTT+ (VT VF) FT

1+(VTT- VF)1 = a + YTTFTT+ YITFIT. (4)
VF VF

34 See the Appendix for details on how VR and VF are calculated. See text around note
38 infra and the Appendix for a discussion of the NRIS data.

This content downloaded from 144.173.006.094 on May 06, 2020 08:37:31 AM

All use subject to University of Chicago Press Terms and Conditions (http://www.journals.uchicago.edu/t-and-c).
 LAND TENURE AND PRODUCTIVITY 439

Equation (4) allows interpretation of the intercept and the slope coeffi-
cients for equation (3). First, controlling for tenure effects, the per-acre
value of output on reservation and fee-simple land will be identical;
ct = 1. Second, because yTT = (VTT - VF)/VF and ylT = (VIT -
VF)/
VF, the upsilons are the percentage differences (after multiplying by 100)
between tribal-trust- and individual-trust-land output values per acre and
fee-simple value per acre, respectively.

V. TESTING FOR THE EFFECT OF TENURE

Other research provides evidence consistent with our hypothesis. Alan

Sorkin concluded that, "[flrom 1948 to 1956 on the White Swan Irrigation
Project (Yakima Reservation) there were great disparities in average val-
ues per crop-Indian operators averaged $89, white operators on Indian
land $126, and white operators on non-Indian land, $222. Gross income
per acre on Indian rangelands was about one-third that on non-Indian
land."35 Ronald Trosper found that trust land resulted in suboptimal farm
size and underinvestment in capital. His sample of over 100 Montana
ranches (using 1967 data) showed that white ranches averaged 8,140 acres
compared to nearby Indian ranches that averaged 6,390 acres. His find-
ings that the capital-to-land ratio and the capital-to-labor ratio were sig-
nificantly higher for white ranches are also consistent with our hypoth-
eses.36
Measuring the welfare effects of trust constraints on Indian agricultural
productivity requires us to know land rents. Since the data sources do
not allow us to estimate land rents, we measure the effect of trust con-
straints by comparing the value of output per acre on trust land with the
value of output per acre on fee-simple land.37 Therefore, our tests are
simply a measure of land-tenure effects on agricultural productivity. A
simple means test of the statistical difference between VTand VF allows
us to reject the hypothesis that there is no difference between agricultural
productivity on trust land and fee-simple land. Indeed, a t-value of 2.70
(with thirty-eight degrees of freedom) shows that the mean of VT (44.32)
is significantly less than the mean of VF (130.18).
To directly test the effects of trust tenure on agricultural productivity,
we construct estimates of 1987 agricultural output per acre for thirty-nine
reservations. Reservations in the sample (with the exception of Kicka-
poo) are larger than 50,000 acres and have significant amounts of agricul-

35 Sorkin, supra note 1, at 67.

36
Trosper, supra note 2, at 506-7.
37 Our method of
using agricultural value per acre is similar to that of Feder, supra note 6.

This content downloaded from 144.173.006.094 on May 06, 2020 08:37:31 AM

All use subject to University of Chicago Press Terms and Conditions (http://www.journals.uchicago.edu/t-and-c).
440 THE JOURNAL OF LAW AND ECONOMICS

TABLE 2
DESCRIPTIVESTATISTICS

Variable Mean Standard Deviation Minimum Maximum N

VF 130.18 230.83 18.47 1152.62 39
VT 44.33 65.24 .00 266.83 39
VR 58.36 70.39 .61 268.97 39
AGRICULTURE .15 .36 .00 1.00 39
INDIVIDUAL 14.76 15.23 .00 51.26 39
INDUSE 59.18 30.54 1.93 100.00 39
NATIVE .58 .50 .00 1.00 39
OPTPLOT .35 .39 .01 1.00 36
POPACRE 1.29 6.86 .00 42.78 39
QUALITY 1.24 1.43 .12 6.10 13
TRIBAL 35.61 36.62 .00 100.00 39

tural production in row crops, small grains, horticulture, or forage, hay,

and pasture.
The main sources of data are the Natural Resource Information Sys-
tem38collected annually by the BIA for each federally recognized Indian
reservation and the 1987 Census of Agriculture.39 The NRIS data are
divided into twelve parts and includes the value of agricultural output for
various commodities produced on trust land, total agricultural acreage,
measures of land capability, and acreage operated by Indians and non-
Indians. The census data provide estimates of agricultural output for fee-
simple land by county. Table 2 provides summary statistics, and Table 3
shows the per-acre value of output for all reservation land as well as for
fee-simple land and Indian trust land.40
Because we predict underutilization of trust lands, our measure of VT
must measure the value of agricultural output from potential agricultural
trust land. To account for underutilization, we divided the gross value of
forage, hay, and pasture, row crops, small grains, horticulture, native
hay, and grazing for Indian and non-Indian operated land by the number
of acres of potential agricultural land.41Trust land with agricultural poten-
tial includes both tribal and individual-trust land classified as being used

38 U.S. Department of the Interior, Bureau of Indian Affairs, Natural Resources Informa-
tion System (1987) (hereinafter NRIS).
39 U.S. Bureau of the Census, 1987 Census of Agriculture (1989) (hereinafter BOC).
40 The Appendix further describes the data sources and the calculations that created the
variables used.
41 Gross values are from
NRIS, supra note 38, at Pt. 6.

This content downloaded from 144.173.006.094 on May 06, 2020 08:37:31 AM

All use subject to University of Chicago Press Terms and Conditions (http://www.journals.uchicago.edu/t-and-c).
 LAND TENURE AND PRODUCTIVITY 441

for open grazing, dry farming, irrigation projects, and private irrigation.42
This measure of potential acreage does not include any forest land, even
though such lands often have agricultural potential and therefore would
make VT even lower.
The NRIS does not include data for fee-simple land on reservations,
so a proxy for VF had to be constructed. We computed this proxy as a
weighted average of per-acre output values for fee-simple land in the
counties encompassing the reservation, where the weights are the frac-
tion of the reservation in each county. Per-acre county measures were
calculated from the census data by dividing total crop output by the total
number of cropland (harvested and fallow) acres in each county.43
The per-acre value of agricultural output for all reservation land, VR,
is the sum of the total value of output from trust land and fee-simple land
divided by total potential agricultural land on the reservation.44 The total
value of output from trust land is taken from NRIS data.45The total value
of output from fee-simple land is the product of the computed per-acre
estimate of VFand the total number of fee-simple acres within the reserva-
tion boundary. Reservation acres with agricultural potential are the sum
of trust acres with potential46 and all fee-simple land.
Several biases that work against our hypotheses are inherent in the
methods used to calculate VF, VR, and VT. First, the calculation of VT
will exceed the true value to the extent that forestlands with agricultural
potential are left out of the acreage calculation. Second, VF will be smaller
than fee-simple production measured off the reservation because (1) fee-
simple land on the reservation benefits less from governmental infrastruc-
ture such as roads and police, (2) it is subject to tribal regulations, (3) no
revenue from livestock products is included, and (4) small- ("hobby"-)
farm revenues (those with less than $10,000 in annual sales) that generally
have a lower value of output per acre are included in VF. Finally, our

42 Id. at Pt. 1.
43 BOC, supra note 39.
44 Because the BIA has no
jurisdiction over fee-simple land, NRIS does not include
information on fee-simple land within reservation boundaries. In fact, there are no complete
estimates of total reservation areas. Therefore, total acreage for each reservation was esti-
mated using a computerized planimeter that measures areas within map boundaries. By
subtracting the total amount of Indian land (including government and "other") in NRIS
data as well as measurable bodies of water, we generated an estimate of fee-simple acreage
within each reservation. While this is the only complete estimate of fee-simple acreage
within the thirty-nine reservations in our sample, figures for selected reservations allowed
us to check the accuracy of our estimates. In all cases, we were within 2 percent of BIA
figures.
45 NRIS, supra note 38, at Pt. 6.
46 Id. at Pt. 1.

This content downloaded from 144.173.006.094 on May 06, 2020 08:37:31 AM

All use subject to University of Chicago Press Terms and Conditions (http://www.journals.uchicago.edu/t-and-c).
 TABLE 3
AVERAGEVALUE OF OUTPUT PERACRE IN INDIAN COUNTRY, 1987(in Dollars)

State and Reservation VF VR VT

Washington:
Colville 292.19 183.72 7.15
Yakima 857.45 268.97 24.64
Oregon:
Umatilla 143.366 98.71 43.06
Warm Springs 174.36 13.88 2.02
Idaho:
Fort Hall 132.64 103.16 103.16
Coeur d'Alene 115.80 125.22 203.05
Nez Perce 110.53 108.80 88.92
Montana:
Blackfeet 45.10 25.78 11.61
Crow 46.17 40.57 37.12
Flathead 44.96 38.98 9.51
Rocky Boy's 39.54 23.20 9.64
Ft. Peck 27.33 21.71 13.89
Northern Cheyenne 40.41 11.34 7.40
Wyoming:
Wind River 54.80 11.61 3.76
North Dakota:
Ft. Berthold 28.83 22.72 17.00
Standing Rock 18.49 18.98 19.86
Ft. Totten 41.00 36.86 15.22
South Dakota:
Cheyenne River 21.21 10.93 .00
Crow Creek 39.35 39.08 38.67
Lower Brule 38.80 39.72 40.54
Pine Ridge 28.32 17.71 10.13
Rosebud Sioux 24.92 17.00 11.19
Yankton 45.50 44.00 32.27
Sisseton 53.01 51.37 37.22
Nebraska:
Omaha 100.73 106.04 151.79
Santee 38.99 38.77 35.73
Winnebago 97.79 98.88 103.66
Minnesota:
Fond du Lac 25.99 25.96 13.42
Arizona:
Colorado River 1,152.61 266.83 266.83
Gila River 577.00 238.69 238.65
Nevada:
Duck Valley 95.09 6.06 6.06
Walker River 94.18 6.22 3.78
Utah:
Goshute 37.39 1.71 1.71
Uintah & Ouray 24.04 22.02 8.02
New Mexico:
Isleta Pueblo 163.94 4.88 4.85

This content downloaded from 144.173.006.094 on May 06, 2020 08:37:31 AM

All use subject to University of Chicago Press Terms and Conditions (http://www.journals.uchicago.edu/t-and-c).
 LAND TENURE AND PRODUCTIVITY 443

TABLE 3 (Continued)

State and Reservation VF VR VT

Colorado:
Southern Ute 21.02 20.41 17.72
Ute Mountain 67.60 .61 .61
Oklahoma:
Kickapoo 98.16 78.20 47.75
Osage 18.47 19.91 30.63

SOURCES.-Acreage for trustlandswas takenfromU.S. Dep't of the Interior,Bureauof IndianAffairs,

NaturalResourcesInformationSystem, Pt. No. 01 (1987).See also the Appendix.

measure of VRis biased upward because we assumed that all fee-simple

land within the reservation boundary is in agricultural production, when
actually a portion of this land will not have such potential.
Before examining the specific tests, we must note that there is the
possibility that VT is less than VF for reasons other than contracting costs.
For example, if water for agriculture is unavailable on Indian lands, it
might be water rather than tenure that is driving observed differences in
agricultural productivity. Indian agricultural productivity, however, is
not necessarily constrained by the availability of water. Indians can pur-
chase water rights, though capital costs are relatively high because of
trust constraints. Moreover, many tribes are winning large water settle-
ments under the Winters Doctrine, and recent settlements have included
additional capital to deliver the water to Indian lands.47
Another possibility is that land tenure on reservations is systematically
related to quality. Several studies of property-rights evolution have ar-
gued that resource values will determine the degree to which rights are
defined and enforced.48 Hence, it may be that the first lands chosen under
allotment were the most productive and that more effort was put into
getting these lands out of trust status. If so, differences in productivity
could be due to land-quality attributes rather than contracting costs.
There are several factors that suggest systematic differences in land
quality are not the cause of lower agricultural productivity on trust lands.
First, if a selection bias existed, we would expect to find systematic

47 See Rodney T. Smith, Water Right Claims in Indian Country: From Legal Theory to
Economic Reality, in Property Rights and Indian Economies (Terry L. Anderson ed. 1992).
48 See Harold A. Demsetz, Toward a Theory of Property Rights, 57 Am. Econ. Rev. 347
(1967); Terry L. Anderson & Peter J. Hill, The Evolution of Property Rights: A Study of
the American West, 12 J. Law & Econ. 163 (1975); and John Umbeck, A Theory of Contract
Choice and the California Gold Rush, 14 J. Law & Econ. 421 (1977).

This content downloaded from 144.173.006.094 on May 06, 2020 08:37:31 AM

All use subject to University of Chicago Press Terms and Conditions (http://www.journals.uchicago.edu/t-and-c).
444 THE JOURNAL OF LAW AND ECONOMICS

patterns in reservation tenure, but the tenure patterns shown on reserva-

tion maps appear random. Second, much of the fee-simple land on some
reservations resulted from homesteading land that was declared surplus
after allotment. If the best land was chosen for allotment, then this sur-
plus, fee-simple land would be inferior. Third, it is unlikely that the attri-
butes of land that affect rents are the same today as they were at the time
of allotment. Since rents can vary with improvements, transportation
costs, population density, and so on, it is not necessarily the case that
allotment choice in the nineteenth century would mirror current land
rents.49 Fourth, if has been virtually impossible to convert trust land to
fee-simple tenure since 1934. Therefore, trust land that has become more
valuable since it was allotted is locked into trust status. To the extent
that tenure has changed, it has been as a result of converting individual
trust and fee-simple land into tribal trust tenure, and there is no reason
to believe that those lands that are converted necessarily have lower
agricultural potential.50 Finally, we have assumed that all fee-simple land
on the reservation is in agricultural productivity, which is the equivalent
of assuming that it is of superior quality.
In addition to these qualitative factors, data on land quality do not
show a significant difference between fee-simple and trust lands. Indeed,
for a subset of our sample, the data suggest that Indian lands may be
higher (rather than lower) quality. The U.S. Department of Agriculture
has developed a land-capability classification system that measures land's
potential for agricultural production.51 There are eight categories of land
capability, the top four of which are generally recognized as best for
producing crops. Such land classification has been undertaken for only
thirteen reservations in our sample. Table 4 shows the percentage of trust
and county (our proxy for fee-simple) land in the highest four categories.
Interestingly, data in this sample indicate that the trust lands have
raw land capability comparable to land in surrounding counties.52 Simple
calculations of the 95 percent confidence intervals for Trust/County,

49 For a discussion of variables other than physical attributes that might affect land
quality, see Gershon Feder, Tongroj Onchan, & Yongyuth Chalamwong, Land Policies and
Farm Performance in Thailand's Forest Reserve Areas, 36 Econ. Dev. & Cultural Change
403, 493 (1988).
50 To control for the
possibility of tenure endogeneity, we applied two-staged least
squares to the equations in Table 5, but the estimates were not significantly different from
those reported.
51 U.S. Department of Agriculture, Soil Conservation Service, Conservation Needs In-
ventory (1970) (hereinafter DOA).
52 Since reservations
vary in size, these calculations were also made by weighting each
reservation by total acres and trust agricultural acres. This adjustment actually increased
trust quality relative to county quality.

This content downloaded from 144.173.006.094 on May 06, 2020 08:37:31 AM

All use subject to University of Chicago Press Terms and Conditions (http://www.journals.uchicago.edu/t-and-c).
 TABLE 4
PERCENTAGE
OFLANDIN HIGHEST CATEGORIES
FOURLAND-CAPABILITY (N

Trust Land County Land

Reservation (%) (%) Trust/County Cou
Fort Hall 39.67 64.25 .62
Blackfeet 49.65 50.20 .99
Crow 33.55 48.50 .69
Rocky Boy's 34.80 76.30 .46
Northern Cheyenne 40.49 35.45 1.14
Wind River 55.49 9.10 6.10
Standing Rock 6.27 50.75 .12
Cheyenne River 37.40 33.10 1.13
Crow Creek 44.50 70.50 .63
Pine Ridge 33.38 37.80 .88
Rosebud 40.86 63.10 .65
Yankton 40.45 86.25 .47
Gila River 41.87 20.90 2.00

Summary statistics:
Minimum 6.27 9.10 .12
Maximum 55.49 86.25 6.10
Mean 38.34 49.71 1.22
Standard deviation 11.02 21.43 1.47

SOURCES.-See the Appendix.

This content downloaded from 144.173.006.094 on May 06, 2020 08:37:31 AM

All use subject to University of Chicago Press Terms and Conditions (http://www.journals.uchicago.edu/t-and-c).
 446 THE JOURNAL OF LAW AND ECONOMICS

County/Trust, and Trust - County do not allow us to reject the hypothe-

sis that the percentage of high-quality land is identical for trust and county
land.53
Regression analysis allows us to quantify how variations in the percent-
age of reservation land in trust tenure affect the value of output per acre
of reservation land, VR (rather than just the value on trust land, VT)
relative to the value of output per acre on fee-simple land, VF.54 This
comparison for each reservation conserves on data requirements by elimi-
nating many sources of input variation. For example, weather and mois-
ture, which vary considerably from reservation to reservation and have
a large effect on agricultural output, are approximately constant within a
reservation. Similarly, for inputs such as seed, pesticides, equipment,
and unskilled farm labor, it is reasonable to assume a perfectly elastic
supply to individual farmers within a reservation while large variations
could exist across reservations.
Specification 1 in Table 5 shows an ordinary least squares (OLS) re-
gression estimate corresponding to equation (3) with the addition of an
error term.55 We can reject the hypothesis that the intercept is zero, but
we cannot reject the alternative hypothesis that it is one.56 The negative
and statistically significant coefficients for both TRIBAL and INDIVID-
UAL show that tribal-trust tenure and individual-trust tenure reduce the
per-acre value of output compared to the fee-simple yardstick by 91.8
percent and 31.4 percent, respectively.
As equation (1) suggests, however, there are also nontenure variables
that will influence agricultural productivity. For example, if Indian farm-
ers have fewer farming skills than their non-Indian counterparts and rep-
resent a higher proportion of reservation farmers (INDUSE) or if Indian
culture places additional constraints on land development (NATIVE), the
ratio of VR to VF will decline regardless of tenure. Smaller initial allot-
ments relative to current optimal farm size (OPTPLOT) also will tend to

53 For
Trust/County the interval is (0.34, 2.11); for County/Trust (0.64, 2.93); and for
Trust - County (- 26.96, 4.21).
54 Furthermore, a simple means test supports the conclusions from the regression analy-
sis. A t-value of 2.04 (thirty-eight degrees of freedom) allows us to reject the hypothesis
that the mean of VRequals the mean of VF.
55 The first
specification in Table 5 is also identical to equation (1) assuming that X3 is a
zero matrix. We also estimated these equations using measurements of trust agricultural
land from NRIS, supra note 38, at Pt. 2 ("Land Use Capability Classes and Present Land
Use") and Pt. 6 ("Gross Value of Products Grown on Indian Lands"). This resulted in a
slightly different estimate of VRIVF,but the coefficients and significance levels were nearly
identical to those reported in Table 5 and are available on request.
56 Under the null hypothesis that the constant equals one, the appropriate t-value is .978
for specification 1.

This content downloaded from 144.173.006.094 on May 06, 2020 08:37:31 AM

All use subject to University of Chicago Press Terms and Conditions (http://www.journals.uchicago.edu/t-and-c).
 LAND TENURE AND PRODUCTIVITY 447

TABLE 5
ORDINARY REGRESSION
LEASTSQUARES ANALYSIS:
TENURECOMPOSITION
AND AGRICULTURAL PRODUCTIVITY

Independent Variable Prediction (1) (2)

CONSTANT = 1 1.04733 1.1415
(21.6435) (13.1965)
TRIBAL - -.9180 -.8510
(12.8932) (6.9984)
INDIVIDUAL - - .3143 - .4193
(1.8348) (2.0178)
AGRICULTURE + ... .0899
(.9901)
INDUSE -... - .00099
(.7734)
NATIVE -... -.09153
(1.5225)
POPACRE -... -.01695
(.4333)
OPTPLOT + ... -.01711
(.2133)

F-statistic 84.7817 20.0258

Adjusted R2 .8151 .7919
N 39 36
absolutet-statisticsare in parentheses.
NoTE.-The dependentvariableis VR/VF;

lower the dependent variable. On the positive side, VR/VF should be

larger if the tribe has a tradition of agriculture (AGRICULTURE) that
provides human capital or traditions that improve agricultural productiv-
ity57or if a smaller tribal population per acre allows more effective moni-
toring of tribal land management (POPACRE). (Refer to the Appendix
for definitions of the variables.)
Several of these nontenure variables are included in specification 2
reported in Table 5.58 This specification again confirms that the intercept

57 For example, John C. Ewers, The Blackfeet: Raiders on the Northwestern Plains 321
(1958), found that Blackfoot Indians would neglect crops and livestock to participate in the
traditional, month-long "Sun Dance."
58 We
regressed our dependent variable on TRIBAL, INDIVIDUAL, and QUALITY
using the thirteen reservations for which land-quality data were available. Since the data in
Table 4 indicate that trust lands have raw land capability comparable to fee-simple lands,
we would not expect QUALITY to have a significant effect. Indeed, the sign is negative
and the coefficient insignificant:
VR/VF= 1.028 - .573 x TRIBAL - .278 x INDIVIDUAL - .0696 x QUALITY,
(7.444) (2.507) (.853) (1.727)
where absolute t-statistics are in parentheses, the adjusted R2 is .572, and the F-statistic is
6.343. This finding is consistent with Feder, supra note 6, whose data on Thailand show

This content downloaded from 144.173.006.094 on May 06, 2020 08:37:31 AM

All use subject to University of Chicago Press Terms and Conditions (http://www.journals.uchicago.edu/t-and-c).
448 THE JOURNAL OF LAW AND ECONOMICS

is not significantly different from one and that the tenure variables are
negative and significant.59 The variables INDUSE, NATIVE, and POP-
ACRE all have the expected negative signs but are only weakly sig-
nificant.60 The AGRICULTURE coefficient has the expected positive
sign but is insignificant. The positive (though insignificant) coefficient on
OPTPLOT refutes our prediction and may be the result of an inadequate
empirical measure.61

VI. CONCLUSION
In Indian country today, there is a peculiar mixture of tenure systems
dating back to the Dawes Act of 1887 and the Indian Reorganization Act
of 1934. These tenure systems tend to increase the costs of land use for
modern agriculture, making it difficult to move Indian land to higher-
valued alternative uses. Trusteeship often combines with tribal rules and
customs to raise the costs of organizing land with other inputs, and our
data indicate that the per-acre value of agricultural output declines as a
result. In particular, our estimates show that the per-acre value of agricul-
tural output is 85-90 percent lower on tribal-trust land than on fee-simple
land and 30-40 percent lower on individual-trust land than on fee-simple
land. The magnitude of these results should not be surprising in light of
the trust constraints on land use. In particular, the inability to use trust
land as collateral, the transaction costs resulting from multiple owners of
small parcels, and the inability to alienate trust lands all make it difficult
to maximize land rents. On tribal-trust lands, these problems are com-
pounded by public choice problems inherent in political decisions uncon-
strained by constitutional limits.
Property institutions do make a difference for productivity, and since
trust constraints apply to other Indian resources-such as coal, oil, min-
erals, and timber-it is likely that the implications of our model would

that the sign of the land-quality coefficient was not stable across regressions and was seldom
significant.
59 Under the null hypothesis that the constant equals one, the appropriate t-value is 1.634
for specification 2.
60 In the case of POPACRE, the weak significance may be due to the fact that POPACRE

measures reservation population rather than tribal membership. Other tribal-organization

variables (for which data are not available) that do not crucially depend on tribal enrollment
may be important.
61
Ideally, we would measure the current size of trust farms relative to fee-simple farms.
Because data on the size of trust farms are unavailable, OPTPLOT is a proxy for trust-farm
size based on the size of original allotments under the Allotment Act of 1887. This approach
will be incorrect if individual reservations have had differing levels of success in consolidat-
ing small trust holdings.

This content downloaded from 144.173.006.094 on May 06, 2020 08:37:31 AM

All use subject to University of Chicago Press Terms and Conditions (http://www.journals.uchicago.edu/t-and-c).
 LAND TENURE AND PRODUCTIVITY 449

carry over to these resources. But simply knowing that trust arrange-
ments reduce the market value of output does not necessarily imply that
trust constraints should be lifted or that fee-simple ownership is prefera-
ble for all Indian-reservation lands. Other considerations, such as tribal
integrity and culture, could make the trust system or some modification
of it preferable. Our analysis, however, indicates that the cost of pursuing
these goals is significant.

APPENDIX

DATA SOURCES AND CONSTRUCTION OF VARIABLES

The data used in this study come from five sources. Data for Indiantrust land
were taken from the Bureauof IndianAffairs' 1987Natural Resources Informa-
tion System.62 The NRIS data are collected annuallyfor each federallyrecognized
Indian reservation and include measures of acreage in various land-capability
classes, land uses, managementtypes, and ownership status; measures of the
value of agriculturaloutput producedduringthe year; measuresof range condi-
tions; numbers and types of irrigationprojects; and measures of wildland and
wildlife inventories.
Data for output from fee-simple land were taken from the 1987 Census of
Agriculture.63 Data for land-capabilityclassificationfor county lands were taken
from the 1970 ConservationNeeds Inventory.64For reservationsthat have been
classified, the land capabilityclassificationfor Indian trust land is found in the
NRIS data. Data on allotment came from Heirship:A Short Report.65Federal
and State IndianReservationsand Indian TrustAreas was also used as a source
for other reservation-specificvariables.66The following is a descriptionof how
each variablewas computed:
VT = average value of output per acre for agriculturaltrust
land. The total value of agriculturaloutputfrom trust
lands is taken from NRIS data.67This total value
includes both Indian-operatedand non-Indian-
operatedland used for forage, hay, and pasture, row
crops, small grains, horticulture,native hay, and
grazing. Because these value data did not distinguish
between tribaland individualtrust land, we were
unable to calculate per-acrevalues for tribaland
individualtrust lands. The agriculturalacreage base
was taken from NRIS data that includedboth tribal

62
NRIS, supra note 38.
63
BOC, supra note 39.
64
DOA, supra note 51.
65 National
Congress of American Indians, supra note 9.
66 U.S.
Departmentof Commerce, Federal and State Indian Reservationsand Indian
TrustAreas (1974)(hereinafterDOC).
67
NRIS, supra note 38, at Pt. 6 ("Gross Value of ProductsGrownon IndianLands").

This content downloaded from 144.173.006.094 on May 06, 2020 08:37:31 AM

All use subject to University of Chicago Press Terms and Conditions (http://www.journals.uchicago.edu/t-and-c).
450 THE JOURNAL OF LAW AND ECONOMICS

and individual-trust land classified as being used for

open grazing, dry farming, irrigation projects, and
private irrigation.68
VF = average value of output per-acre for fee-simple land.
Because NRIS included no data on fee-simple land,
this average was calculated as the weighted average
of the output value per acre on county land for those
counties that encompass the reservation. Weights
were the fraction of the reservation that lay within a
given county and were calculated from maps using
ocular planimetry. The data for county output
values per acre were taken from the 1987 Census
of Agriculture.69 All farms in the county and all
cropland (harvested and fallow) were included in
the acreage base. This includes "hobby" farms for
which annual sales were less than $10,000 for 1987.
VR = average value of output per acre for all reservation
land. The total market value of the products
produced on the reservation are calculated by adding
the total value of products from trust lands70 to the
total value of products from fee-simple reservation
lands. The total value of products from fee-simple
reservation lands was calculated by multiplying the
per-acre value of output from fee-simple land (VF) by
the number of acres of fee simple agricultural land
shown in Table 1. The number of acres of fee-simple
agricultural land was calculated by subtracting total
trust acreage on a reservation from the total acreage
within the reservation border. Because there are no
complete statistics on reservation acreage, this total
was calculated by using computer planimetry to
estimate acreage from U.S. Geological Survey maps.
To obtain a per-acre value, the total value of
agricultural output was divided by the total acres
of agricultural land, both trust and fee simple.
AGRICULTURE = one if the tribe practiced agriculture prior to the
reservation period. Federal and State Indian
Reservations and Indian Trust Areas gives a detailed
description of each reservation and includes a history
of the reservation land and the tribes that now
occupy the land.71 These descriptions included
information about the tribes' historical agricultural
practices.

68Id. at Pt. 1 ("Ownershipand Land Use Class of Lands Under BIA Jurisdiction").
69
BOC, supra note 39.
70
NRIS, supra note 38, at Pt. 6.
71 DOC,
supra note 66.

This content downloaded from 144.173.006.094 on May 06, 2020 08:37:31 AM

All use subject to University of Chicago Press Terms and Conditions (http://www.journals.uchicago.edu/t-and-c).
 LAND TENURE AND PRODUCTIVITY 451

INDIVIDUAL = percentage of reservation farmland that is

individual-trust land. Individual-trust farmland
is taken from NRIS data for both Indian and
non-Indian use for open grazing, dry farming,
irrigation projects, and private irrigation.72This trust
acreage was divided by total reservation farmland
calculated as the sum of fee-simple and trust
farmland73as described in the calculation of VR.
INDUSE = percentage of Indian trust farmland operated by
Indians. The acreage for Indian-operated farmland
is taken from NRIS data that distinguishes between
Indian-operated and non-Indian-operated farmland.74
This was divided by the agricultural acreage base
used above to calculate VT.
NATIVE = one if the tribe was indigenous to the area; and zero
otherwise. Federal and State Indian Reservations
and Indian Trust Areas gives a detailed description
of each reservation and includes a brief history of
the reservation land and the tribes that now occupy
the land.75 These descriptions included information
about the tribes' historical relationship to the
reservation territory.
OPTPLOT = the ratio of individual trust allotments on the
reservation to the size of the average farm for
fee-simple land. The size of allotments on each
reservation was taken from Heirship: A Short
Report.76 The average farm size for fee-simple land
was calculated as a weighted average (the weights
again being the fraction of the reservation in each
county encompassing the reservation) of the average
farm size for all farms in the counties encompassing
the reservation. These county data were taken from
1987 Census of Agriculture.77 Because of missing
data on allotments, we were not able to calculate this
variable for the Coeur d'Alene, Omaha, and Osage
reservations. As a result, the sample size was
thirty-six when OPTPLOT was used in the
regression analysis.
POPACRE = ratio of reservation population to tribal farmland.
Reservation population was taken from the 1980

72
NRIS, supra note 38, at Pt. 1.
73 Id. at Pt. 1.
74 Id.
75 DOC, supra note 66.
76 National Congress of American Indians, supra note 9.
77 BOC, supra note 39.

This content downloaded from 144.173.006.094 on May 06, 2020 08:37:31 AM

All use subject to University of Chicago Press Terms and Conditions (http://www.journals.uchicago.edu/t-and-c).
452 THE JOURNAL OF LAW AND ECONOMICS

Census of Population.78 The amount of tribal

farmland was taken from NRIS data as described
below in the calculation of TRIBAL.79
QUALITY = percentage of Indian land in top four land-capability
categories relative to the percentage of county land
in these categories. The percentage of Indian land in
top four land-capability categories was taken from
NRIS data for both cropland and grazing land.80
The percentage of county land in the highest four
land-capability categories was taken from the 1970
Conservation Needs Inventory.81 This percentage
was also calculated as a weighted average (using the
fraction of the reservation in each county as the
weights) of the percentage of county land in the top
four categories for those counties encompassing the
reservation.
TRIBAL = fraction of reservation farmland in tribal ownership.
Tribal trust farmland is taken from NRIS data for
both Indian and non-Indian use for open grazing, dry
farming, irrigation projects, and private irrigation.82
This trust acreage was divided by total reservation
farmland calculated as the sum of fee-simple and
trust farmland as described in the calculation of VR.

BIBLIOGRAPHY

Anderson, Terry L., and Hill, Peter J. "The Evolution of Property Rights: A
Study of the American West." Journal of Law and Economics 12 (1975):
163-79.
Bottomley, Anthony. "The Effect of the Common Ownership of Land upon Re-
source Allocation in Tripolitania." Land Economics 39 (1963): 91-95.
Buchanan, James M. The Limits of Liberty: Between Anarchy and Leviathan.
Chicago: University of Chicago Press, 1975.
Carlson, Leonard A. Indians, Bureaucrats and Land: The Dawes Act and the
Decline of Indian Farming. Westport, Conn.: Greenwood Press, 1981.
Cohen, Felix S. Handbook of Federal Indian Law. Washington, D.C.: U.S. Gov-
ernment Printing Office, 1942.
Cook, Chuck; Masterson, Mike; and Trahant, Mark N. "Fraud in Indian Country:
A Billion Dollar Betrayal." Arizona Republic, October 4-11, 1987.
Debo, Angie. A History of the Indians of the United States. Norman: University
of Oklahoma Press, 1989.

78U.S. Bureauof the Census, AmericanIndianAreas and AlaskaNative Villages:1980,

in 1980Census of Population(1984).
79 NRIS, supra note 38, at Pt. 1.
80 Id. at Pt. 2.
81
DOA, supra note 51.
82
NRIS, supra note 38, at Pt. 1.

This content downloaded from 144.173.006.094 on May 06, 2020 08:37:31 AM

All use subject to University of Chicago Press Terms and Conditions (http://www.journals.uchicago.edu/t-and-c).
 LAND TENURE AND PRODUCTIVITY 453

Demsetz, Harold. "Toward a Theory of Property Rights." American Economic

Review 57 (1967): 347-59.
DeVany, Arthur, and Sanchez, Nicolas. "Land Tenure Structures and Fertility
in Mexico." Review of Economics and Statistics 61 (1979): 67-72.
Dorner, Peter P. "Needed: A New Policy for the American Indian." Land Eco-
nomics 37 (1961): 162-73.
Ewers, John C. The Blackfeet: Raiders on the Northwestern Plains. Norman:
University of Oklahoma Press, 1958.
Feder, Gershon. "Land Ownership Security and Farm Productivity: Evidence
from Thailand." Journal of Development Studies 24 (1987): 16-30.
Feder, Gershon, and Onchan, Tongroj. "Land Ownership Security and Farm
Investment in Thailand." American Journal of Agricultural Economics 69
(1987): 311-20.
Feder, Gershon; Onchan, Tongroj; and Chalamwong, Yongyuth. "Land Policies
and Farm Performance in Thailand's Forest Reserve Areas." Economic Devel-
opment and Cultural Change 36 (1988): 483-501.
Fonaroff, Leonard S. "Political Process and Cultural Change among the Na-
vaho." Geographical Review 61 (1971): 442-44.
Gilbert, William H., and Taylor, John L. "Indian Land Questions." Arizona Law
Review 8 (1967): 102-31.
Johnson, Omotunde E. G. "Economic Analysis, the Legal Framework, and Land
Tenure Systems." Journal of Law and Economics 15 (1972): 259-76.
Karpoff, Jonathan M., and Rice, Edward M. "Organizational Form, Share Trans-
ferability, and Firm Performance: Evidence from the ANCSA Corporations."
Journal of Financial Economics 24 (1989): 69-105.
Lopach, James J.; Brown, Margery Hunter; and Clow, Richmond L. Tribal Gov-
ernment Today: Politics on Montana Indian Reservations. Boulder, Colo.:
Westview Press, 1990.
McChesney, Fred S. "Government as Definer of Property Rights: Indian Lands,
Ethnic Externalities, and Bureaucratic Budgets." Journal of Legal Studies 19
(1990): 297-315.
Mudd, J. O. "Jurisdiction and the Indian Credit Problem." Montana Law Review
33 (1972): 307-20.
National Congress of American Indians. Heirship: A Short Report. Denver: Na-
tional Congress of American Indians, 1968.
Presidential Commission on Indian Reservation Economies. Report. Washington,
D.C.: U.S. Government Printing Office, 1984.
Prucha, Francis Paul. The Great Father: The United States Government and the
American Indians. Lincoln: University of Nebraska Press, 1984.
Smith, Rodney T. "Water Right Claims in Indian Country: From Legal Theory
to Economic Reality." In Property Rights and Indian Economies, edited by
Terry L. Anderson. Savage, Md.: Rowman & Littlefield, 1992.
Sorkin, Alan L. American Indians and Federal Aid. Washington, D.C.: Brookings
Institution, 1971.
Sutton, Imre. Indian Land Tenure. New York: Clearwater Publishing, 1975.
Trosper, Ronald L. "American Indian Relative Ranching Efficiency." American
Economic Review 68 (1978): 503-16.

This content downloaded from 144.173.006.094 on May 06, 2020 08:37:31 AM

All use subject to University of Chicago Press Terms and Conditions (http://www.journals.uchicago.edu/t-and-c).
454 THE JOURNAL OF LAW AND ECONOMICS

Umbeck, John. "A Theory of Contract Choice and the California Gold Rush."
Journal of Law and Economics 14 (1977): 421-37.
U.S. Bureau of the Census. "American Indian Areas and Alaska Native Villages:
1980." In 1980 Census of Population. Washington, D.C.: U.S. Government
Printing Office, 1984.
U.S. Bureau of the Census. 1987 Census of Agriculture. 3 Vols. Various states.
Washington, D.C.: U.S. Government Printing Office, 1989.
U.S. Department of Agriculture. Soil Conservation Service. Conservation Needs
Inventory. Various states. Washington, D.C.: U.S Government Printing Of-
fice, 1970.
U.S. Department of Commerce. Federal and State Indian Reservations and In-
dian Trust Areas. Washington, D.C.: U.S. Government Printing Office, 1974.
U.S. Department of the Interior. Report of the Task Force on Indian Economic
Development. Washington, D.C.: U.S. Government Printing Office, 1986.
U.S. Department of the Interior. Bureau of Indian Affairs. Findings and Recom-
mendations of the National Indian Agricultural Working Group. Washington,
D.C.: U.S. Government Printing Office, 1987.
U.S. Department of the Interior. Bureau of Indian Affairs. Natural Resources
Information System. Washington, D.C.: U.S. Government Printing Office,
1987.
U.S. House of Representatives. Committee on Interior and Insular Affairs. Indian
Heirship Land Study. Pts. 1 and 2. 86th Cong., 2d sess. Washington, D.C.:
U.S. Government Printing Office, 1960.
Williams, Ethel J. "Too Little Land, Too Many Heirs-the Indian Heirship Land
Problem." Washington Law Review 46 (1970-71): 709-44.

This content downloaded from 144.173.006.094 on May 06, 2020 08:37:31 AM

All use subject to University of Chicago Press Terms and Conditions (http://www.journals.uchicago.edu/t-and-c).