According to a paper from the Quarterly Journal of Economics, the introduction of low-cost barbed wire fencing to the American Plains led to more efficient land use, rising settlement rates, increased land values, and greater crop productivity. Before the land was fenced, farmers risked uncompensated damages from others’ livestock, and this risk and high cost of fencing restricted agricultural development.
In The Problem of Social Cost, Coase (1960) begins with the example of a farmer and a cattle-raiser: without a fence, cattle will damage the farmer’s crops. Land use will be efficient if liability for damage is defined and enforced, and this property right can be traded costlessly. Otherwise, cattle damage imposes an externality that distorts the farmer’s product choices, investment levels, and production methods (Cheung 1970). The externality is internalized or eliminated when those costs fall below the resulting gains (Demsetz 1967); for example, when fencing costs fall sufficiently, the farmer builds a fence and produces within at efficient levels.
The economic repercussions of low-cost fencing are fascinating, with the reinforcement of a farmer’s ability to use land efficiently for specific purposes, improving both crops and cattle productivity. According to the paper, the securing of land increases investment in the land, reduces the amount of labor to manage the land, and speeds economic growth. In England, securing of common lands has even been tied to the rise of the Industrial Revolution as it both increased agricultural output and freed up the labor supply.
The paper contains detailed historical accounts of the history of barbed wire in the Great Plains, methodology and statistics of the study, and detailed interpretation of barbed wire’s effects. Read the full paper here.
The effect of insecurity and its role on land investment is something that applies increasingly in other areas of our increasingly insecure world. I’m sure similar economic analysis has been applied to areas prone to natural disasters. An economic approach to analysis will likely be of increasing value as we realize the need for more efficient land management.