A Dynamic Option Value for Institutional Change: Marketable Property Rights in the Sahel

In this article we use dynamic programming methods to create an option value measure of the value of the institutional innovation of marketable property rights. This measure has two properties that are important to understanding institutional change: it is truly dynamic and it allows for agent heterogeneity. In the case of West Africa, we find that the collapse of customary risk management institutions is a vital part of the demand for marketability rights as agents struggle to smooth income and consumption in its wake. We find that the social efficiency implications of this demand for institutional innovation are ambiguous. Copyright 1999, Oxford University Press.