Coconut land fragmentation in Sri Lanka: an inquiry into the potential moral hazard behavior of landowners seeking for the approval

Abstract

The Tea, Rubber and Coconut Estates (Control of Fragmentation) Board was set up under the Act No: 20 of 2005 (An amendment of Act No: 2 of 1958) to control transferring of the ownership of coconut lands of more than four hectares as a single unit or sub divisions. The owner of a coconut land who wants to fragment her block is, thus, required to undergo a formal procedure to get approval to which the first step was the submission of a duly filled application explaining the characteristics of, and management practices used in, the coconut land to be fragmented. The specific objective of this study was to examine whether this process is associated with moral hazard and/or adverse selection behavior of owners, because any applicant may tend to manage her coconut land incongruously to gain advantage in the selection process. The outcome of analysis, which used first hand information from 50 applications submitted to the regional offices of the Coconut Cultivation Board from July 2005 to January 2008, showed that nearly 22% owners did not maintain their plantation up to their capacity, although their lands belonging to the best and moderate suitable soil classes with high productivity. This implies the need for evidence-based assessment criteria in the process of selection of coconut land for fragmentation to avoid potential failures in the process, and in turn, the Act. COCOS Vol. 20: 39-48 (2013)