Compulsory land redistribution from the perspective of the theory of price control

Abstract

Philippine agrarian reform involves compulsory purchase of private farmlands. Several landowners were suspected of either using land use conversions (LUCs) to pre-empt expropriation, or choosing market-led agrarian reform (MLAR) options to retain effective control of their farmland. However, there has been no statistically-tested empirical evidence to support anecdotal claims that these were adopted by landowners to protect private property rights. Before testing whether LUCs have been used solely to avoid land redistribution, this article provides a theoretical framework that treats the reform as a price intervention policy since compensation is usually below market value. This article’s novelty lies in its application of Cheung’s theory of price control to explain how land redistribution could change the use of productive asset through LUC, or the contractual arrangement of involved parties through MLAR. Afterwards, this study employs feasible generalized least squares regression, where the effect of compulsory land redistribution on MLAR and LUC are tested to investigate the hypothesis that LUC was largely induced by agrarian reform. The results show that some LUC and MLAR were induced by the risk of expropriation, although in the case of former only when the risk of expropriation is high. Based on Cheung's theory of price control, the response choice should depend on the transaction costs associated with each of the alternatives. The theoretical framework suggests that some landowners may have preferred MLAR first before considering LUC, which is posited as one reason why the proportion of expropriation-induced LUC may not have been as high as some might like to claim.