Forming Institutions in Fouda1: The Origins of Property Rights in Palestinian Refugee Camp Sectors Nadya Hajj Parks Presented at a colloquium at the Workshop in Political Theory and Policy Analysis, Indiana University, Bloomington, on Monday, November 17, 2008. Do NOT Quote Without Permission Abstract: Scholars in such disparate fields as philosophy, economics, and political science argue that a system of well-defined property rights is a key factor in economic development and subsequently political stability and security. Despite significant theoretical and empirical support for the positive effects of property rights on economic growth and stability, much less is known about the origins of property right institutions, especially among marginalized groups that live in fouda or anarchy, like Palestinian refugees. On the basis of original field data collected over the course of three years, I test the efficiency, distributional, and socio-historical explanations for institutional formation. Evidence suggests that existing institutional explanations are, alone, inadequate at explaining institutional formation. Combinations of the approaches were evident in refugee camp sectors. I discovered that hegemonic powers like Fateh can craft secure property rights despite strong distributional motives, in the presence of latent political contestation, long time horizons, and resource scarcity. In addition, intervening variables like common pool resources influence the strategic decision of actors to exploit property rights. Finally, results hold positive policy implications for marginalized groups like Palestinian refugees. Namely, marginalized groups can craft strong property rights even in the absence of a state authority. © 2008 Nadya Hajj Parks 1 Fouda means anarchy in Arabic.2Introduction- The Importance of Studying Property Right Formation in Palestinian Refugee camps Scholars in such disparate fields as philosophy, economics, and political science argue that a system of well-defined property rights is a key factor in economic development and subsequently political stability and security. Property rights are a bundle of rights and responsibilities that give an individual or group exclusive right to use, rent, sell, limit access to, protect, and benefit from ownership of an asset or resource. The literature of the New Institutional Economics (NIE) has devoted significant attention to the importance of property rights. The NIE argues that secure property rights provide actors with the incentive to invest in the market around them because individuals can appropriate the benefits of their investments. Despite significant theoretical and empirical support for the positive effects of property rights on economic growth and stability, much less is known about the origins of property right institutions (North 1990, Knight 1992, Alston et al 2004, De Soto 1989, Libecap 1989).2 Only in recent years have scholars developed institutional approaches that might account for property right formation. I have divided existing scholarship into a basic typology that includes three theories of institutional formation. These theories are referred to as the efficiency, distributional, and socio- historical institutional explanations. Importantly, the existing literature on institutional formation does not clearly specify its theories and excepting a few studies, these theories have not been tested in a rigorous manner (Allio et al 1997). Currently, the literature on institutional formation lacks conclusive evidence of the explanatory power of each approach in different political and economic settings. One of the reasons we lack such evidence is that natural experiments, where new social communities form and interact to solve basic collective action dilemmas like the establishment of institutions, are relatively rare. I overcome the weaknesses in the institutional literature that I described above by taking advantage of the unique natural experiment that Palestinian refugee camps present. The formation of property right regimes in Palestinian refugee camps in Lebanon provides us with a valuable opportunity to examine the process of institutional formation in real time. It was only in the early 1970s, following economic and political shocks that camps formed property rights. Interestingly, most of the camp residents initially involved in the formation of property rights still live in the camps today. Also, Palestinian refugee camps provide researchers with an opportunity to examine how property rights form where none had existed before. In effect, we are given insight into how groups emerge from anarchy, or what Palestinians call fouda, and create institutions. 2 Institutions establish the framework for social interaction. Property rights are considered to be institutions because they are pretty stable sets of shared and realized expectations about how people should and will behave in economic, political and social settings with respect to their ownership of a resource or asset. These expectations structure behavior by letting individuals know the consequences of their own actions as well as others (North 1990, Knight 1992, Allio et al 1997).3This paper contributes to our knowledge of Palestinian refugee camps in Lebanon. Recent reports of the destruction and death in Nahr al Bared refugee camp in Northern Lebanon have dominated news sources. It seems that when the world actually hears about Palestinian refugee camps in Lebanon, reports focus on the camps as hopeless locations that serve as breeding grounds for terrorist groups.3 Certainly Palestinians have faced seemingly insurmountable obstacles in Lebanon. Many Palestinians arrived in the camps in 1948 with only the clothes on their backs. They lived for close to twenty years without clean running water and electricity. They are inured to war and political instability. However, a sad appraisal of destruction and death in Nahr al Bared and other Palestinian refugee camps like it in Lebanon only presents a partial portrait of life in the camps. Inside the refugee camps there are multilevel cinder block homes, a myriad of businesses and industries, a complex array of electrical wires, and underground plumbing pipes. Despite the difficulties that the refugee camp life presented, Palestinians have crafted sophisticated property right institutions that governed and organized their behavior inside the refugee