Rural land titling and property rights: does legislating smallholdings as a non-seizable family asset improve smallholder family farmers’ welfare?

Juan M. Murguia, Kassu W. Hossiso and Sergio Lence

ISU General Staff Papers from Iowa State University, Department of Economics

Abstract: Land titling and property rights have been of interest in agricultural economics for many years because land is the main production asset for agricultural activity. There is evidence that links land titling with increments in productivity and investment. One of the reasons being that titling facilitates access to credit, by enabling the use of land as collateral. In this paper, we study a particular policy in Bolivia, where legislation prevents legally defined smallholdings from being used as collateral, in order to protect smallholders’ source of income, preventing the seizure of their assets. This study analyzes whether smallholders’ welfare is improved by this protective measure, assessing if the positive impact of the land risk premium generated by the non- seizability, has a bigger impact than the negative impact of the capital constraint reducing optimal investment. Differences in land prices are assumed to reflect differences in expected future profit, as a measure of welfare. We use a unique dataset of 2,609 recorded land transactions in the Department of Santa Cruz, Bolivia, between 2010 and 2015 to determine whether being a smallholding affects land price per hectare. Results indicate that land prices are negatively affected if legally classified as a small ranch, implying that the capital constraint negative effect dominates the land risk premium positive effect, while the opposite is true for farms. To account for other unobservable variables affecting land prices other than non-seizability we refine our analysis considering small neighborhood variations near the cutoff value for “small farms”. Additionally, we analyze policy implications.

Date: 2018-07-01
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Working Paper: Rural Land Titling and Property Rights: Does Legislating Smallholdings as a Non-Seizable Family Asset Improve Smallholder Family Farmers’ Welfare? (2018)
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