The Impact of Landownership Security: Theory and Evidence from Thailand

Abstract

This article develops a model of farmers' land acquisition and investment decisions. The model clarifies the relation between land values, landownership security, and credit markets. The risk of eviction on untitled lands and the advantages in access to credit associated with titled land are shown to account for the higher price of titled land. Furthermore, observed land prices are distorted when credit is priced below the opportunity cost of capital and the risk of eviction is positive. Therefore social benefit analysis of land titling cannot utilize land prices without correcting for these distortions. The article offers formulas for performing such corrections. Econometric estimates of the value of legal ownership in three provinces of Thailand using cross-section land price data show a statistically significant effect of ownership security on land price. The econometric estimates of ownership security are combined with the formulas generated by the model to yield estimates of the social benefit of land titling in the three provinces. The analysis implies that granting full legal ownership to squatters can be a socially beneficial policy in many provinces.

Land ownership security and farm productivity: Evidence from Thailand

“…Figure 1 outlines the causal chain of the preceding discussion. This conceptual framework has been rigorously developed within an optimising fanner's model [Chalamwong and Feder, 1986;Feder and Onchan, 1987]; below we review empirical evidence substantiating some of its links.…”

“…Data from these survey areas show that eviction of squatters is rarely practised in rural Thailand because of socio-political constraints [Chalamwong and Feder, 1986]. Hence, the majority of sampled farmers without title documents do not perceive the reduction in eviction risk as the most significant advantage entailed in a secure legal title.…”

“…Hence, the majority of sampled farmers without title documents do not perceive the reduction in eviction risk as the most significant advantage entailed in a secure legal title. Rather, they indicated that improved access to institutional credit was the overriding benefit of legal ownership [Chalamwong and Feder, 1986]. A study of credit transactions of untitled and titled fanners confirmed that titled farmers frequently utilised their land as loan collateral, obtaining significantly larger amounts of institutional credit [Feder et al, 1986a].…”

“…Farmers can, obviously, decide to locate either in or outside forest reserve by acquiring land appropriately. The two types of land, titled and untitled, have a different market price equilibrating the land market [Chalamwong and Feder, 1986]. Once settled, farmers are either titled or untitled.…”

Access to Markets and the Benefits of Rural Roads

“…Average farm size (cultivated area) is 22% lower within an hour's travel time than it is outside this distance, while average vegetable production intensity (in kilograms per hectare) is more than three times higher.13 For example, where land is the sole form of collateral for loans, its price may re¯ect its collateral value in addition to the capitalised value of the stream of rents (seeChalamwong and Feder, 1988).…”