Time-Limited Property Rights and Investment
THOMAS J. MICELI
Department of Economics, University of Connecticut, Storrs, CT 06269, USA
C. F. SIRMANS
Department of Finance and Real Estate Center, School of Business Administration,
University of Connecticut, Storrs, CT 06269, USA
Although it is axiomatic that property rights of inﬁnite duration are necessary for owners to make efﬁcient long
term investments in their property, time limits on property rights are pervasive in the law. This paper provides
an economic justiﬁcation for such limits by arguing that they actually enhance property values in the presence
of imperfect information. In so doing, the analysis offers a coherent approach for understanding what otherwise
appear to be unrelated doctrines in the law.
Key Words: investment incentives, property rights, time limits
In his excellent survey paper, Geoffrey Turnbull uses a dynamic investment framework
to examine the effects of various land use regulations on the timing and pattern of land
development in an urban setting. By emphasizing the dynamic effects of land use
policies, Turnbull uncovers important new insights into nature of land development.
However, because his focus is on the incentive effects of various regulations (actual or
threatened), he devotes little attention to the economic rationale behind those regulations.
This essay extends Turnbull’s analysis by highlighting the social beneﬁts of a certain
class of restrictions that take the form of time-limited property rights. Our speciﬁc
contribution is to use Turnbull’s dynamic investment framework to reveal the common
economic logic underlying these types of restrictions.
It is axiomatic in economics that property rights of inﬁnite duration are necessary for
owners to make efﬁcient long term investments in their property. Yet legally imposed
time limits on property rights are pervasive in the law (Epstein, 1986). One example,
mentioned by Turnbull, is the law of adverse possession, which establishes a statute of
limitation on a landowner’s right to exclude squatters or boundary encroachers from their
land. If the landowner does not assert that right before the statutory period expires, title
passes to the adverse possessor. Although many have argued that this rule seems to
The Journal of Real Estate Finance and Economics, 31:4, 405–412, 2005
2005 Springer Science + Business Media, Inc. Manufactured in The Netherlands.