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


  • Derek Stacey

    () (Queen's University)


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.

Suggested Citation

  • Derek Stacey, 2011. "Tenure Insecurity, Adverse Selection, and Liquidity in Rural Land Markets," Working Papers 1269, Queen's University, Department of Economics.
  • Handle: RePEc:qed:wpaper:1269

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    References listed on IDEAS

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    4. Deininger, Klaus & Jin, Songqing, 2006. "Tenure security and land-related investment: Evidence from Ethiopia," European Economic Review, Elsevier, vol. 50(5), pages 1245-1277, July.
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    7. Deininger, Klaus & Zegarra, Eduardo & Lavadenz, Isabel, 2003. "Determinants and Impacts of Rural Land Market Activity: Evidence from Nicaragua," World Development, Elsevier, vol. 31(8), pages 1385-1404, August.
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    Cited by:

    1. Pierre van der Eng, 2016. "After 200 years, why is Indonesia’s cadastral system still incomplete?," CEH Discussion Papers 046, Centre for Economic History, Research School of Economics, Australian National University.

    More about this item


    Competitive Search; Land Markets; Tenure Security; Liquidity;

    JEL classification:

    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • Q15 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Land Ownership and Tenure; Land Reform; Land Use; Irrigation; Agriculture and Environment
    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • R23 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Regional Migration; Regional Labor Markets; Population

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