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Tenure Insecurity, Adverse Selection, and Liquidity in Rural Land Markets

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  • Derek Stacey

    ()
    (Queen's University)

Abstract

A theory of land market activity is developed for settings where there is uncertainty and private information about the security of land tenure. Land sellers match with buyers in a competitive search environment, and an illiquid land market emerges as a screening mechanism. As a consequence, adverse selection and an insecure system of property rights stifle land market transactions. The implications of the theory are tested using household level data from Indonesia. As predicted, formally titled land is more liquid than untitled land in the sense that ownership rights are more readily transferable. Additional implications of the theory are verified empirically by constructing a proxy variable for land tenure security and studying the differences between markets for unregistered land across Indonesian provinces. Regional land market activity is appropriately linked to the distribution of the proxy variable.

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File URL: http://qed.econ.queensu.ca/working_papers/papers/qed_wp_1269.pdf
File Function: First version 2011
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Bibliographic Info

Paper provided by Queen's University, Department of Economics in its series Working Papers with number 1269.

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Length: 57 pages
Date of creation: Apr 2011
Date of revision:
Handle: RePEc:qed:wpaper:1269

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Keywords: Competitive Search; Land Markets; Tenure Security; Liquidity;

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  1. Ai, Chunrong & Norton, Edward C., 2003. "Interaction terms in logit and probit models," Economics Letters, Elsevier, vol. 80(1), pages 123-129, July.
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  14. Frank Place & S. E. Migot-Adholla, 1997. "The Economic Effects of Land Registration on Smallholder Farms in Kenya: Evidence from Nyeri and Kakamega Districts," Land Economics, University of Wisconsin Press, vol. 73(3), pages 360-373.
  15. Michael R. Carter & Yang Yao, 2002. "Local versus Global Separability in Agricultural Household Models: The Factor Price Equalization Effect of Land Transfer Rights," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, Agricultural and Applied Economics Association, vol. 84(3), pages 702-715.
  16. Benjamin Lester & Andrew Postlewaite & Randall Wright, 2011. "Information and Liquidity," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 43, pages 355-377, October.
  17. Brasselle, Anne-Sophie & Gaspart, Frederic & Platteau, Jean-Philippe, 2002. "Land tenure security and investment incentives: puzzling evidence from Burkina Faso," Journal of Development Economics, Elsevier, vol. 67(2), pages 373-418, April.
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