Land Reform and Technical Efficiency: Theory and Panel Data Evidence from Brazil
Abstract: New Institutional Economics has provided inputs for market-assisted land reform based on land redistribution through endogenous institutions. Theory and prior evidence have stated the following features as determinants of production efficiency: the establishment of complete property rights, owner-cultivator and the inverse relationship, peer monitoring in rural credit markets, decentralised governance with community-based self-selection and land selection with bargaining. We develop a theoretical framework to explain land reform beneficiaries' production efficiency based on the aforementioned features extended with high individual heterogeneity and a diversity of institutional constraints. Using an empirical strategy based on Agricultural Economics’ recognition of farmers’ responsiveness to changing incentives in a dynamic world and of the existence of systematic deviations from optimal production, we estimate a production function model with time-varying inefficiency effects. The model is performed for 204 households for the years 2000 and 2006 with a sampling procedure devised for an impact evaluation of the Programa Cédula da Terra, which solves the policy endogeneity problem. Results indicate that beneficiaries’ success depend on a fine-tuning of a set of variables in very rigid and restrictive environmental and institutional settings. Therefore, household production efficiency and the refinement of the policy’s targeting process are certainly open issues.
