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Getting Institutions 'Right' for Whom: Credit Constraints and the Impact of Property Rights on the Quantity and Compostiton of Investment

  • Pedro Olinto

The effects of property rights on investment are typically hypothesized to occur through a security-induced investment demand and a collateral-based credit supply. Using a two period model, this paper shows that for farms that are constrained in their access to liquidity, the investment demand effect will itself induce an increase in the endogenous shadow price of liquidity. Other things equal, this induced increase in the price of liquidity will discourage capital accumulation, and that the desired stock of expropriation-immune movable capital may decrease with tenure security. Empirical analysis of farm-level data from Paraguay corroborates this proposition and reveals that the underlying pattern of wealth-biased capital access creates a world in which property rights reform has differential effects across producer wealth classes and gets institutions "right" and agriculture moving for only for a wealthier subset of producers.

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Paper provided by Wisconsin-Madison Agricultural and Applied Economics Department in its series Wisconsin-Madison Agricultural and Applied Economics Staff Papers with number 433.

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Length: 36 pages
Date of creation: Jun 2000
Date of revision:
Handle: RePEc:wop:wisaes:433
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  1. Gourieroux, Christian & Monfort, Alain, 1993. "Simulation-based inference : A survey with special reference to panel data models," Journal of Econometrics, Elsevier, vol. 59(1-2), pages 5-33, September.
  2. Bo Honore & Ekaterini Kyriazidou & J. L. Powell, 2000. "Estimation of tobit-type models with individual specific effects," Econometric Reviews, Taylor & Francis Journals, vol. 19(3), pages 341-366.
  3. Carter, Michael R., 1988. "Equilibrium credit rationing of small farm agriculture," Journal of Development Economics, Elsevier, vol. 28(1), pages 83-103, February.
  4. Bell, Clive & Srinivasan, T N & Udry, Christopher, 1997. "Rationing, Spillover, and Interlinking in Credit Markets: The Case of Rural Punjab," Oxford Economic Papers, Oxford University Press, vol. 49(4), pages 557-85, October.
  5. Barham, Bradford L. & Boucher, Stephen & Carter, Michael R., 1996. "Credit constraints, credit unions, and small-scale producers in Guatemala," World Development, Elsevier, vol. 24(5), pages 793-806, May.
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