Institutional Arrangements and Farmland Rents in India: A Ricardian Analysis

Abstract

In addition to environmental factors, the welfare of farming communities in most developing countries depends largely on the credibility of organizations that regulate, implement, and protect different institutional arrangements for facilitating coordination between people. This study adopts the Ricardian approach to investigate whether people’s confidence in such local and national organizations is reflected in farmland rents in rural India. By using repeated cross-sectional household and monthly rainfall data, econometric modeling results indicate a positive relationship between farmland rents and a constructed index of confidence in different organizations. Accounting for the potential endogeneity in this index, TSLS results, with a monthly marginal implicit rent (M-MIR) of $13.32 per acre, reveal an even stronger and significant impact. This implies that the M-MIR of farmlands, of people’s confidence in institutional arrangements is equivalent to 83% of the monthly rural poverty line for a five-member household. The instrument selected to address the potential endogeneity in the confidence index is men’s exposure to mass media in the household. Factors controlled for include - households’ participation in community groups, land area, mode of irrigation, seasonal rainfall, village level information on cattle prices, and distance to different amenities. The findings support the critical importance of continued investment in regional and national entities that oversee and implement various institutional arrangements for facilitating greater cooperation within farming communities.