Insecurity of property rights and social matching in the tenancy market

Abstract

This paper shows that insecurity of property rights over agricultural land can have large efficiency and equity costs because of the way it affects matching in the tenancy market. A principal-agent framework is used to model the landlord's decision to rent when he takes into account the risk of losing the land to the tenant and when contract enforcement is decreasing in social distance with the tenant. These effects are quantified for the case of local land rental markets in the Dominican Republic. Results show that insecure property rights lead to matching in the tenancy market along socio-economic lines, severely limiting the size of the rental market and the choice of tenants for landlords, both with efficiency costs. Social segmentation reduces access to land for the rural poor, with high equity costs. Simulations suggest that improving tenure security would increase rental transactions by 21% and the area rented to the poor by 63%. Increased property rights security is hence beneficial not only to asset owners, but also to those with whom they might interact in the market.1

Institutional Regime, Off-Farm Employment, and the Interaction Effect: What are the Determinants of Households’ Forestland Transfer in China?

“…Thus, participation in rental markets is likely to be sub-optimal under insecure property rights. The positive link between tenure security and the land transaction has been widely observed in empirical studies in different countries [9][10][11][12][13]. In China's farmland transfer market, besides the tenure security, the development of parallel factor markets, especially the off-farm labor market, is seen as another crucial determinant of land transfer [7,[14][15][16][17][18].…”

Industrial land development in urban villages in China: A property rights perspective

“…Several empirical studies were conducted to validate this theoretical model. Macours, Janvry, and Sadoulet (2010) found that incomplete property rights sharply reduce the level of transactions in the land rental market in rural areas of the Dominican Republic. Griffith-Charles (2004) found a substantial increase in land sales over the entire country after the land titling program specified the land property rights in St. Lucia.…”

Mismatch: Land Reallocations, Recovery Land Rental and Land Rental Market Development in Rural China

“…In our case, farming is by and large physical work. 30 The reason is that if many members in the household participate in o¤-farm work, there should be less available labor for farming. So these households are more likely to rent out the unfarmed land or under farmed land for rent.…”

“…I also control for share of o¤-farm workers in the household. It is hypothesized that households with more members participating in o¤-farm work is more likely to rent out land 30 and less likely to rent in land (Lin, 1988; Deininger and Jin, 2005). Agricultural tax 31 is also included in the regression model.…”