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Informational Rents and Property Rights in Land

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  • Dilip Mookherjee

Abstract

Is the institution of land tenancy inefficient? If so, why does it survive? This paper uses a complete contracting framework to develop a theory of land ownership in the context of a labour surplus, subsistence economy. Ownership affects efficiency in the presence of incentive-based informational rents, and endogenous credit rationing, both arising from wealth constraints. A ceteris paribus transfer of ownership to a tenant or hired labour results in higher bargaining power and rent capture by the cultivator. This explains why small owner cultivated farms relying on family labour exhibit higher productivity and welfare (in a utilitarian sense). Nevertheless, tenancy results in a Pareto efficient outcome: the market will never effect such transfers, as tenants will not be able to borrow enough to purchase land. The model predicts that productivity differences between tenant and family farms will be large when population pressure on the land is high, alternative employment opportunities of farmers are low, and their wealth levels are neither too low nor too high.

Suggested Citation

  • Dilip Mookherjee, 1995. "Informational Rents and Property Rights in Land," Boston University - Institute for Economic Development 55, Boston University, Institute for Economic Development.
  • Handle: RePEc:fth:bosecd:55
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    References listed on IDEAS

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    Cited by:

    1. Dilip Mookherjee & Debraj Ray, 2002. "Contractual Structure and Wealth Accumulation," American Economic Review, American Economic Association, vol. 92(4), pages 818-849, September.
    2. Baland, Jean-Marie & Robinson, James A, 2003. "Land and Power," CEPR Discussion Papers 3800, C.E.P.R. Discussion Papers.
    3. Jean-Marie Baland & James A. Robinson, 2008. "Land and Power: Theory and Evidence from Chile," American Economic Review, American Economic Association, vol. 98(5), pages 1737-1765, December.
    4. Banerjee, Abhijit V. & Ghatak, Maitreesh, 2004. "Eviction threats and investment incentives," Journal of Development Economics, Elsevier, pages 469-488.
    5. Bandiera, Oriana, 2002. "Land distribution, incentives and the choice of production techniques in Nicaragua," LSE Research Online Documents on Economics 3545, London School of Economics and Political Science, LSE Library.
    6. Jonathan Conning, 2002. "Latifundia Economics," Economics Working Paper Archive at Hunter College 02/1, Hunter College Department of Economics.
    7. Samuel Bowles & Herbert Gintis, 2000. "Risk Aversion, Insurance, and the Efficiency-Equality Tradeoff," UMASS Amherst Economics Working Papers 2000-03, University of Massachusetts Amherst, Department of Economics.
    8. Jacoby, Hanan G. & Mansuri, Ghazala, 2006. "Incomplete contracts and investment : a study of land tenancy in Pakistan," Policy Research Working Paper Series 3826, The World Bank.
    9. Dilip Mookherjee, 1999. "Contractual Constraints on Firm Performance in Developing Countries," Boston University - Institute for Economic Development 98, Boston University, Institute for Economic Development.
    10. Oriana Bandiera, 1999. "On the Structure of Tenancy contracts: Theory and Evidence fron 19th Century Rural Sicily," STICERD - Development Economics Papers - From 2008 this series has been superseded by Economic Organisation and Public Policy Discussion Papers 19, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.

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