Latifundia Economics

This paper proposes a simple general equilibrium theory of agrarian production organization to explain the emergence and persistence of latifundia - minifundia type patterns of agrarian production organization such as have prevailed historically in many parts of Latin America. When land ownership is concentrated, the exercise of market power over land can facilitate the exercise of control over labor, as labor supply to landlord estates is affected by peasant access to land. Equilibria may emerge where landlords, behaving as multimarket Cournot oligopolists, inefficiently hoard land to drive up land rentals and corral cheaper labor into their expanding estates. Labor-service tenancy arrangements, similar to those used in practice, emerge as landlords try to price discriminate. These contracts help to restore allocative inefficiency but lead to lower equilibrium peasant wages and welfare. Population growth, differential technical progress on landlord and peasant farms, and other changes in the physical and economic environment are shown to transform equilibrium patterns of agrarian production organization in ways that are consistent with agrarian trajectories observed in late nineteenth century Chile and several other regions and periods. The model also clarifies how agents' incentives to challenge property rights change along with equilibrium agrarian structures.