Land Reform and Technical Efficiency: Theory and Panel Data Evidence from Brazil

Marcelo M. Magalhães (Campus of Tupã, Universidade Estadual Paulista)
Guilherme B. R. Lambais (International Policy Centre, UNDP)
José Maria F. J. da Silveira (Institute of Economics, University of Campinas)

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.


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