The political economy of rural property rights and the persistence of the dual economy

a r t i c l e i n f o Rural areas often have more than one regime of property rights and production. Large, private-property farms owned by powerful landowners coexist with subsistence peasants who farm small plots with limited property rights. At the same time, there is broad consensus that individual, well-specified and secure property rights over land improve economic outcomes. If property rights in land are so beneficial, why are they not adopted more widely? I put forward a theory according to which politically powerful landowners choose weak property rights to impoverish peasants and force them to work for low wages. Moreover, because weak property rights force peasants to stay in the rural sector protecting their property, the incentives to establish poor property rights are especially salient when peasants can migrate to an alternative sector, such as when urban wages increase with industrialization. The fact that the wage level in the capitalist sector depends upon earnings in the subsistence sector is sometimes of immense political importance, since its effect is that capitalists have a direct interest in holding down the productivity of the subsistence workers (…) In actual fact the record of every imperial power in Africa in modern times is one of impoverishing the subsistence economy, either by taking away the people's land, or by demanding forced labour in the capitalist sector, or by imposing taxes to drive people to work for capitalist employers. In many less-developed countries, property rights over land are poorly specified and weakly enforced. More specifically, rural areas in developing countries throughout history, and even today, often have more than one regime of property rights and production. A more " modern " group of " capitalist " landowners, with large, private-property farms, coexists with a more " traditional " or " subsistence " group of peasants , who farm small plots with limited property rights. At the same time, there is broad consensus that individual, well-specified and secure property rights over productive assets, and land in particular, improve economic outcomes. Thus the " dual " structure of the agricultural sector may reduce productivity, and raises some key questions: Why aren't strong, private property rights adopted more widely? Why did this structure emerge and persist? In this paper, I examine these questions and put forward a theory of endogenous rural property rights. The main message is that politically powerful landowners may choose weak …