Sovereignty, Law, and Finance: Evidence from American Indian Reservations

In 1953, Congress supplanted the tribal civil law on some American-Indian reservations with the civil law of the US state in which they are located. In the vein of cross-national literature on law and finance, I demonstrate that Congress’s action reduced external financial actors’ uncertainty over the enforcement of contracts on some reservations. Using novel data on 20,000 home loans to tribal members guaranteed by a US Housing and Urban Development program (1996–2013), I find a causal effect at the individual level: mortgage holders governed by US state civil law pay consistently lower interest rates. Thus, externally imposed law generates long-term benefits for tribal members. Nonetheless, qualitative extensions suggest that neither the presence nor the magnitude of the effect offsets many tribes’ prioritization of their sovereignty, rather than the individual-level economic benefits that can result from compromising it.