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Land Protection, Credit Access, and the Insurance Gap: The De Soto Trap

Author

Listed:
  • Werner Hernani Limarino

    (Investigador asociado de INESAD)

Abstract

Bolivia’s Ley1720(April2026)allowssmallholderstovoluntarilyconvertconstitu- tionally protected pequeña propiedad—land thatcannotbeseizedbycreditors—into pledgeable mediana propiedad, explicitlytargetingthecredit-accesschannelthatHer- nando deSotopopularized.Thispaperdevelopsadynamicmodelshowingthatsuch conversion createsa De Sototrap: thehouseholdsmostlikelytoconvertarethose most desperateforliquidity,notthosebestpositionedtobenefitfromcredit,andthese households facethehighestdefaultprobability.Withoutcomplementaryinsurance, land flowsirreversiblyfromvulnerablesmallholderstothosewithcapitaltopurchase foreclosedproperties.Themodelyieldsthreeresults:(i)adverseselectionintocon- version emergesendogenouslyfromthethresholdconditions;(ii)aggregatesmall- holder landdecaysexponentiallytowardzero—aratchetthatcannotreversewithout policy intervention;(iii)mandatoryinsuranceasaconversionrequirementfiltersout non-viable applicants,boundslandloss,andraisesnetwelfarebyafactoroffour. Calibrated toBolivianagriculturalcensusdata,themodelpredictsthatundercurrent policy,120,000householdswilllosetheirlandwithin25years.Thelawaddressesthe channel (credit)forwhichempiricalevidenceisweakestwhileremovingaprotection (implicit insurance through inalienability) whose value the risk literature suggests is large. Bolivia’s reform inverts the optimal policy sequence.

Suggested Citation

  • Werner Hernani Limarino, 2026. "Land Protection, Credit Access, and the Insurance Gap: The De Soto Trap," Development Research Working Paper Series 05/2026, Institute for Advanced Development Studies.
    • Handle: RePEc:adv:wpaper:202605
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    Keywords

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    JEL classification:

    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • Q15 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Land Ownership and Tenure; Land Reform; Land Use; Irrigation; Agriculture and Environment
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law

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