Jul 28, 2012

Why are property rights not adopted more widely?

If property rights in land are so beneficial, why are they not adopted more widely? I propose a theory based on the idea that limited property rights over peasants' plots may be supported by elite landowners (who depend on peasants for labour) to achieve two goals. First, like other distortions such as taxation, limited property rights reduce peasants' income from their own plots, generating a cheap labour force. Second, and unlike taxation, they force peasants to remain in the rural sector to protect their property, even if job opportunities appear in the urban sector. The theory identifies conditions under which weak property rights institutions emerge, providing a specific mechanism for the endogenous persistence of inefficient rural institutions as development unfolds. It also predicts a non-monotonic relationship between the quality of rural property rights and land in the hands of peasants.
That is from a paper by Leopoldo Ferguson. The question is important. There are many reasons why property rights are not adopted more widely in developing regions. Besides Ferguson's story we can add 1) competing claims on the same property which are hard to elucidate, 2) judicial systems that are very slow to solve competing claims and to adjudicate rights when the only evidence is oral, 3) unwillingness to formalize the land due to lack of information of the benefits of doing so, 4) the existence of complex collective action arrangements which make formalization not efficient for some individuals, or simply that 5) peasants find very hard to organize themselves to promote legalization. In any case, Ferguson story is intriguing.
The paper it is titled The Political Economy of Rural Property Rights and the Persistence of the Dual Economy (June 2012). 
HT: Catalina Carvajal

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