Acquiring Land from Traditional Communities: Bottlenecks, Misallocation and Second-Best Considerations

Abstract

Abstract We discuss reasons why traditional rural communities may be reluctant to voluntarily relinquish their access to land despite being compensated at market prices, thereby limiting the scope for reallocating land to more productive uses in agriculture or urban development. Owing to financial market imperfections, insurance and collateral benefits of land ownership imply that welfare-optimal land allocations may not maximize productive efficiency, even if distributive or environmental considerations are ignored. We provide some suggestive evidence and discuss implications for land acquisition policy.