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Efficiency and Equity Effects of Land Markets

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  • Otsuka, Keijiro

Abstract

It is widely believed that land markets, including both land sales and tenancy markets, are neither efficient nor conducive to social equity. It is often argued that tenants, particularly share tenants, do not have proper incentives to work and invest, partly because of the disincentive effects of output sharing and partly because of the tenure insecurity. It is also widely accepted that land sales transactions tend to exacerbate the social equity and rural poverty by facilitating the concentration of land ownership by hands of a few wealthy landlords. Based on these presumptions, land reform programs have been implemented in a number of developing countries. This article critically reviews these presumptions both theoretically and empirically. Firstly, we identify why land tenancy transaction is more common than land sales transactions and why share tenancy is more common than leasehold tenancy. Secondly, we critically review the theories of share tenancy, tenure security, and adjustment costs of farm size. Thirdly, we empirically review the efficiency and equity effects of land markets as well as the impacts of conventional land reform programs. It has become clear from the literature review that land reform polices have generally failed to improve land use efficiency and social equity. It is also found that tenancy contracts, including share tenancy, are generally efficient and conducive to social justice. In conclusion, we propose to encourage tenancy transactions, in general, and share tenancy, in particular.

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This chapter was published in:

  • Robert Evenson & Prabhu Pingali (ed.), 2007. "Handbook of Agricultural Economics," Handbook of Agricultural Economics, Elsevier, edition 1, volume 3, number 1, 00.
    This item is provided by Elsevier in its series Handbook of Agricultural Economics with number 5-51.

    Handle: RePEc:eee:hagchp:5-51

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    Web page: http://www.elsevier.com/wps/find/bookseriesdescription.cws_home/BS_HE/description

    Related research

    Keywords: Farmers; Farm Production and Farm Markets;

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    Cited by:
    1. Arimoto, Yutaka, 2011. "The impact of farmland readjustment and consolidation on structural adjustment: The case of Niigata, Japan," CEI Working Paper Series 2011-3, Center for Economic Institutions, Institute of Economic Research, Hitotsubashi University.
    2. Jeetendra P. Aryal & Stein T. Holden, 2012. "Livestock and land share contracts in a Hindu society," Agricultural Economics, International Association of Agricultural Economists, vol. 43(5), pages 593-606, 09.
    3. James Roumasset, 2010. "Wither The Economics of Agricultural Development?," Working Papers 201003, University of Hawaii at Manoa, Department of Economics.
    4. Jikun Huang & Liangliang Gao & Scott Rozelle, 2012. "The effect of off-farm employment on the decisions of households to rent out and rent in cultivated land in China," China Agricultural Economic Review, Emerald Group Publishing, vol. 4(1), pages 5-17, February.
    5. Takashi Yamano & Yuki Tanaka & Raphael Gitau, 2010. "Haki Yetu (It’s Our Right): Determinants of Post-Election Violence in Kenya," GRIPS Discussion Papers 10-20, National Graduate Institute for Policy Studies.
    6. Céline Bignebat & Laure Latruffe, 2009. "Twenty years of land reforms in Central and Eastern Europe: state of play and outlook," Working Papers SMART - LERECO 09-19, INRA UMR SMART.
    7. Douglas Gollin & David Lagakos & Michael E. Waugh, 2013. "The Agricultural Productivity Gap," NBER Working Papers 19628, National Bureau of Economic Research, Inc.
    8. Hoken, Hisatoshi, 2012. "Development of land rental market and its effect on household farming in rural China : an empirical study in Zhejiang Province," IDE Discussion Papers 323, Institute of Developing Economies, Japan External Trade Organization(JETRO).
    9. Falkowski, Jan, 2013. "Does it matter how much land your neighbour owns? The functioning of land markets in Poland from a social comparison perspective," Factor Markets Working Papers 171, Centre for European Policy Studies.

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