A Household/Village Approach to the Analysis of Land Access and its - PowerPoint PPT Presentation

A Household/Village Approach to the Analysis of Land Access and its Implications on Household Welfare Stefania Lovo

LAND ACCESS Land reforms/Agrarian reforms are one of the key instruments for addressing rural poverty and improving living standards of poor people in developing countries. There are no many studies assessing the effects of land reforms because they require pre and post reform periods data: Besley and Burgess (1999) estimate the overall impact of the land reform developed in India using panel data from 1958 to 1992. Deininger and Jin (2002) present a model to compare government and market based land reallocation. The study suggests that a rental market-oriented reform has a more efficient impact on households than an administrative reallocation.

APPROACHES: 1. Farm Household Model: farm households are a fundamental productive unit characterizing most developing economies. The household agricultural activities may serve as a source of cheap food and an opportunity for self-employment. Farm households are strongly depended on land disposal. 2. Village/Community Model: In developing countries, economic context may vary across villages. An accurate knowledge of interlinked transactions within local institutions and mar- kets is necessary to address policy interventions. At vil- lage/community level there may exists particular linkages be- tween land and collateral markets (e.g. informal markets) which may not emerge at a higher level of analysis.

FARM HOUSEHOLD GENERAL EQUILIBRIUM MODEL Household members are involved in decisions regarding produc- tion and consumption, moreover, farm profits are a part of family income. A household model which captures both the consump- tion and the production decision processes is useful to understand household behavior. A household model is necessary to understand relations between household preferences over goods consumption, time allocation and production decisions when there are market imperfections. → Separability property −

LITERATURE ⋆ Household general equilibrium models: Singh et al.(1986) present a detailed analysis of farm household behavior under a separable and a non separable regime. De Janvry et al.(1991) suggest several models to analyze household response under different market failures. Lofgren and Robinson (1999) suggest a farm household general equilibrium model in which the emergence of the autarchy regime is endogenous to the model. ⋆ Separability tests: Benjamin (1992) uses a reduced form for labor demand to test whether de- mographic variables affect farm production decisions.

LITERATURE (2) Bowlus and Sicular (2003) follow the approach of Benjamin. They divide the sample in three groups on the basis of per capita land, finding that separability is rejected not only in the land scarce group but also in the land abundant one. Cafiero et al. (2004) the authors suggest a test for separability which allows for household heterogeneity, they find that almost half of the households in the sample are constrained. ⋆ Farm Household models and land access Carter and Yao (2002) find two critical values of per capita land endowment such that households lying between these two values will not enter the land rental market, therefore these autarchic households will exhibit non separa- bility. Burgess (2001) finds that in rural households in two Chinese provinces charac- terized by imperfect food markets, redistribution of land may positively affect family nutrition through an income and an own price effect due to the linkage between household consumption and production.

SEPARABLE FARM HOUSEHOLD MODEL U ( X a , X m , X l , z h ) Problem : max p m X m + p a X a = p a q − wL h + wL o T = L f + L o + X l q = Q ( L f + L h , A, z q ) L o < M L ∗ ( w, p i , A ) Profit maximization condition : p a Q L = w → Π ∗ ( w, p i , A ) → It reduces to a two-stage problem where: − Y ∗ = p m X m + p a X a + wX l = Π ∗ + wT is full Income

NON SEPARABLE FARM HOUSEHOLD MODEL T − X l = L D + M Clearing conditions: L = U ( X a , X m , X l ) − λ [ p a X a + p m X m − p a Q ( L, A ) − wM ] − µ [ T − X l − L − M ] first order conditions : X a : U a = λp a X m : U m = λp m X l : U l = µ L : p a Q L = µ/λ λ : p m X m + p a X a = p a Q ( L, A ) + wM µ : T − X l = L + M where w ∗ = µ/λ is the shadow wage

Result one : if land is a fixed factor and the labor market is rationed households face a shadow wage. w ∗ = w ∗ ( p m , p a , A, z h , z q ) < w X ∗ i = X ∗ i ( p m , p a , w ∗ , Y ) the optimal consumption: L ∗ = L ∗ ( p m , p a , w ∗ , A ) the optimal labor demand: q ∗ = q ∗ ( p m , p a , w ∗ , A ) the optimal production output: π ∗ = π ∗ ( p m , p a , w ∗ , A ) farm shadow profits:

Rewriting the first order condition respect to labor in terms of the market wage, using the assumption of constant returns to scale: p a f L ( l ) ≤ w 1 A ∗ /L = we find a cut off value: f − 1 L ( w p ) Those households owning an amount of land per unit of labor lower then A ∗ /L should face a shadow wage Result two : Land endowment is a key element in dis- criminating between constrained and unconstrained house- holds .

Totally differentiating the clearing condition referred to time al- location: T − X l = L D + M and rearranging the terms in order to derive an expression for ∂w ∗ ∂A we obtain: � ∂L D ∂A + ∂X l ∂π � − ∂w ∗ ∂Y ∂A ∂A = ∂Y ( T − L D ) + ∂L D ∂w ∗ − ∂X l ∂X l ∂w ∗ Result three : Access to land increases the shadow wage and therefore contributes to reduce the welfare loss of constrained households. A Land reform helps households to give value to own underutilized assets .

The effect of land access on household consumption: Constrained households: ∂A + ( T − L D ) ∂w ∗ ∂w ∗ ∂X i ∂A = ∂X i � ∂π + ∂X i � i = a, m ∂w ∗ ∂Y ∂A ∂A Unconstrained households: ∂Q ( L, A ) ∂X i ∂π ∂A = p a ∂A = p a i = a, m ∂A Result four : Access to land has a greater impact on those households exhibiting non separability due to an income effect and a shadow wage effect .

AIMS (1) : ⋆ To distinguish those households exhibiting separability from the unconstrained ones. ⋆ Assessing the welfare conditions and verify if the assumptions of the model are satisfied. ⋆ Analyzing how land access has affected household welfare and behavior, using pre and post reform data (If I can find it (?)).

VILLAGE GENERAL EQUILIBRIUM MODEL Limited effects of land reforms are often been attributed to the fact that the same program is imposed in different countries without regards for local realities and customary laws. local interlinked transactions within households, firms and − → institutions (Bardhan, 1984). The experience of a Municipal Land Reform Plan in Colombia in the context of a ”market - assisted land reform”, has shown that a decentralized program may constitute an incentive for an efficient implementation of the reform (Deininger, 1999).

LITERATURE Bardhan and Udry (1999) underline the fact that a land reform may not pro- duce desirable effects if interlinked relations with the credit market are ignored, they suggest a model which takes into account credit-labor interlinkages and a model of credit-trade interlinkages. In Adelman et al. (1988) the authors use a village general equilibrium model to point out the importance of national and international migrant remittances in a village in Central Mexico. Taylor and Yunez-Naude (2002) analyze the linkages between farm and non- farm sectors at the village level. Lofgren and Robinson (1999) suggest a CGE model which includes non - separable farm household models; non- separability emerges endogenously as the result of the gap between sales and purchase prices. Kuiper and Van Tongeren (2004) present a village general equilibrium models for a representative rice producing village in a poor Chinese province which also incorporate farm-household models.

The Village General Equilibrium Model (VCGE) bases on a Vil- lage Social Accounting Matrix (VSAM). The VSAM contents can briefly summarize as follows: intermediate transactions within village sectors; ⋆ ⋆ value added produced by sectors and distributed among household farm members, landless workers; and other institutions as labor and capital remunerations; ⋆ households expenditure and savings. The VSAM allows also for self - consumption and leisure consumption; ⋆ local interlinked transactions within households, firms and institutions.

The Village General Equilibrium model may be summarized in four blocks: ⋆ Production: at sector and farm household level. ⋆ Income: sale of own products (except for landless workers), payments to family labor employed on and off farm and capital remuneration. Consumption: purchased goods and services, leisure consumption, self ⋆ consumption. Families save part of their income. ⋆ Market clearing conditions: the village may act as a closed economy (village price) or as an open economy (exogenous prices, village market surplus)