ARE 251/Econ 270A, Fall 2004 Alain de Janvry Land Rental Contracts

• Observe that land sales markets between large landlords and small peasants are thin/segmented because: 1. Land is overpriced for small buyers relative to value in use (borrowing capacity): the price of land internalizes tax advantages, expected speculative gains, wealth sheltering, social status effects, and collateral value. 2. Smallholders do not have access to long term credit. 3. Even if they can buy land on credit, fully mortgaged land does not allow them to access additional loans for working capital. Hence, they can only work the land by reducing consumption, or using own accumulated wealth. 4. Empirically (Carter and Salgado; Deininger and Chamorro), observe that land sales markets are regressive: concentrate land. 5. World Bank policy proposal: land market-assisted land reform. Subsidies to land market purchases by poor (landless, smallholders). But expensive.