Land Registry Business Models: A Conceptual Framework Benito ARRUÑADA Professor of Business Organization Pompeu Fabra University, Barcelona (Spain) Session on “Land Registry and business models: Diversity of contexts and systems,” Annual World Bank Conference on Land and Poverty. Washington DC, March 24 th, 2015

References (available at ▪ Arruñada, B., & S. Hansen (forthcoming), “Organizing Public Good Provision: Lessons from Managerial Accounting,” Intl. Review of Law & Economics. ▪ Arruñada, B. (2014), “Markets for Public Services,” UPF WP Series, October 26. ▪ Arruñada, B. (2012), Theory & Policy of Contractual Registries, University of Chicago Press, Chicago. (Spanish translation: Thompson-Reuters, 2013). 2

Three Parts ▪ I. The economics of bureaucracyThe economics of bureaucracy ▪ II. Learning from “Old World” registriesLearning from “Old World” registries ▪ III. Taking stockTaking stock 3

Part I The economics of bureaucracy

Bureaucracy as “Expense Centers” ▪ Units (i.e., registries) ♦Are given a budget ♦Supply a set of services ♦Lacking objective measurement of performance ▪ Problems: grow too large & inefficient b/c: ♦Users do not pay  trivial demand til U’ = 0 ♦Suppliers “build empires” ♦Budget office ignores users’ value and suppliers’ costs 5

Competition, Monopoly and “unconstrained” Bureaucracy 6

Palliatives: budget battles, cuts, freezes, ZBB ▪ Budget office does not know where to cut ▪ Gaming the budget office: e.g., using sensitive users in budget wars ▪ Root causes subsist  recidivism ♦information deficit when users do not pay  poor allocation of resources and cuts ♦Recurrent crisis & budget cuts ♦Even ZBB ends up being “incremental” 7

Radical solution: incentives, even an “internal” or “quasi” market ▪ Users: prices (partial, total) and/or opportunity cost through freedom of choice (among expenses, internal suppliers, external suppliers) ▪ Suppliers: pay for performance, even profit sharing; and freedom to organize provision ▪ Budget office: upgraded to market designer and manager, … big expense center itself ▪ Hope-for effects ♦Users reveal information  better control of budget ♦Suppliers organize efficiently ♦Users guide resource allocation, closures  efficiency 8

Incentives for users: fees ▪ Optimal pricing: MC = SMU with externalities ▪ Common distortions: ♦Subsidized or zero price: free titling w. intl. aid ♦“Cash cow”: high price for inelastic services: US PTO EU registries before the “Fantask” sentence Land registries when considering transfer taxes 9

Incentives for providers: ▪ Real markets rely on property rights, which automatically ♦Evaluate performance ♦Reward owners ♦Reallocate resources ▪ Artificial markets need incentives & a planner ♦Designing the market ♦Avoiding market failure ♦Tolerating market decisions 10

Part II Learning from “Old World” registries

Spanish Land & Co. Registries ▪ Registries created as “regulated franchises” (1861): ♦Regulation of entry, process, fees, etc. E.g., access: exam + seniority (  deferred compensation, self-selection) ♦Franchise: registrar “owns” a registry, hires workers and gets the profit ▪ Relatively automatic control: ♦Territorial monopolies  independence ♦Registrars’ personal strict liability  legal review ♦Fees collected after registration  delay ♦Mutual control bwn hierarchical levels Notaries (registries’ suppliers) freely chosen by users Regulators paid fixed salary + delayed good promotion (pantoufles) 12

HM Land Registry (England & Wales) ▪ < 1990, a bureaucracy  registration took 34 weeks on avg., despite huge surplus ▪ > 1990, a “trading fund” (somehow similar to state-owned firm) ▪ Incentives ♦Strong globally: 3.5% targeted “return on capital” ♦Weak individually: small, only top managers ▪ Privatization being considered  useful? 13

Both English and Spanish land registries comparatively “efficient” ▪ Both are registries of rights (so called “Torrens”) ▪ Compared to other EU registries: ♦Lower transaction costs (x10 order-of-magnitude) and more effective (e.g., speedy foreclosure) ▪ Compared to Spanish registries organized as expense centers: ♦Cadastre takes 3 years vs. land registry 1 week ♦Civil registry could not cope with immigration—land registry coped easily with both real estate bubble and bust ♦Or even financial registries: +2% annual fees on capital 14

Local and global efficiency ▪ Number of registry offices ♦Spain: (registrars lack decision rights on entry + cross-subsidy bwn users + State poor incentives) ♦England: 17 (HMLR motivated to minimize costs)  adds risks to privatization ▪ Solvable by tinkering with the design without costly “management”? 15

Part III Taking stock

Salient features ▪ Partial but strong incentives. In registries: ♦quality & externalities important  monopoly, procedural regulation ♦Spain: Franchising  Local efficiency Difficult global coordination ♦HMLR: close to state owned firm Weak incentives ▪ In any case, little and automatic management ♦Opposing incentives: fixed vs variable for controller / controlled, registrars / conveyancers, regulator / regulated, etc. 17

Comparative analyses ▪ Compared to bureaucracy ♦Retain procedural control  uniform “quality” ♦Charge user fees  self-sustained w/o cash cows ▪ Compared to “internal markets” ♦Little “management”  ♦Simple incentives, but Automatic Strong –ROI (ENG) –profits and property rights (Spain) 18

Thanks