Interdependent Investments in Attached and Movable Assets under Insecure Land Rights

Abstract

The literature concludes that insecure land rights cause farms to make suboptimal investment in attached assets, but not in movable assets. However, the two asset types are interdependent, and investment in attached assets affects investment in movable assets through changing the farm infrastructure. I develop a conceptual model to explain why tenure insecurity incentivizes a farm to under-invest in attached assets and over-invest in low-efficiency movable assets. Simulations based on the model suggest that the sub-optimal investment results in considerable economic loss. The findings have important policy implications regarding land reforms and farm infrastructure in developing economies.