Property rights and the political organization of agriculture

Literature › Works

Jonathan H. Conning; James A. Robinson (2007). Property rights and the political organization of agriculture. Journal of Development Economics 82. Elsevier.

Type	journal article
Scope	Comparative and methods
Method	mixed
Period studied	1939–1992
Regions	India, Latin America, South Korea, Western Europe, North America, Taiwan and Japan
Themes	agriculture land, comparative theory, politics ideology elections, methods data sources
Citation key	conning2007

Argument

The paper builds a two-period general equilibrium (Ricardo-Viner/specific factors) model in which the organization of farming and the political equilibrium that fixes property-rights security are determined together. Landlords who expect tenants or squatters to win rights over land they lease out may defensively withhold land from the lease market. This secures property rights at the cost of efficiency: landlord farms become too large, peasant farms too small, and rural-urban migration rises. If transaction costs are low and discount rates are equal, a market in 'squatters' rights' can emerge instead and efficiency is preserved. The model also predicts that reform is more likely where peasants have political clout, land is unequal, and the urban electorate is small. A panel of 15 Indian states supports this with IV and fixed-effects estimates, and historical episodes from Latin America, Korea, Europe and North America are used as illustration.

Evidence and method

Cross-country tables on tenancy and land Ginis (Hayami and Otsuka 1993, Wilkie, Swinnen, Deininger and Olinto). A 15-state Indian panel with NSSO tenancy rates for 1961, 1972, 1982 and 1992, combined with the Besley and Burgess (2000) dataset on reform indices, urbanisation and candidates per seat. Secondary historical accounts for Colombia, Peru, El Salvador, Chile, South Korea (Jeon and Kim 2000) and Europe.

Findings

• Headline thesis: security of property can be bought at the cost of economic efficiency. (p. 1)

  Property rights security may then be secured at the expense of economic efficiency.

• Latin America has very concentrated land but low tenancy, which contradicts standard incentive theory. (p. 3)

  despite having by far the most concentrated land ownership pattern and fewer laws to regulate tenancy contracts, less than 12% of cultivated land was under tenancy in 1970.

• With no leakage and equal discount rates, the threat of reform does not distort allocations, because squatter rights can be sold. (p. 13)

  Even with a positive threat of property rights reform α>0, equilibrium allocations will remain efficient as long as κ=0 and βl=βp.

• Proposition 1: when reform is expected and bargaining is costly, landlords defensively suppress tenancy, producing a bimodal farm structure. (p. 14)

  Landlord farms will become larger and more land-intensive, and peasant farms smaller and more labor-intensive than the first-best efficient scale.

• Landlords acting collectively would suppress more tenancy than atomistic landlords, since each landlord who leases out land imposes an externality on the others. (p. 21)

  landlords suppress more tenancy when they can coordinate their actions.

• Reported tenancy in India fell steeply across all states, although unevenly. (p. 22)

  From 1954 to 1992, the reported share of cultivated land under tenancy fell sharply, but unevenly, across all states.

• Each tenancy reform act is associated with a lower reported tenancy rate in the IV estimates. (p. 26)

  each additional legislative act of tenancy reform reduces the tenancy rate by about 1.4 percentage points.

• The cumulative effect of reform acts is large relative to the observed decline. (p. 26)

  Since the cumulative tenancy reform index ranges from 0 to 9 over this period, this accounts for up to almost 13 percentage points of decline.

• Land inequality raises tenancy up to a threshold, after which the relationship flattens and reverses. (p. 26)

  land inequality increases tenancy in a state up to a land Gini of approximately 65 (on a scale of 100) at which point the relation levels off and then declines.

• Data caveat: under-reporting of tenancy to evade regulation may bias the measured decline. (p. 22)

  survey respondents may be under-reporting tenancy to elude tenancy regulations

• In South Korea, anticipatory market sales transferred more land to tenants than the official reform did, which the authors read as a market in squatters' rights. (p. 29)

  more than twice as much land was sold by landlords in anticipation of the reform than was transferred directly via the land reform process