Incentivizing Land Market Participation in Kenya

In much of Sub-Saharan Africa, land allocations are largely determined by inheritance and it is claimed that the land market frictions have a negative effect on efficiency and equity. However, at the latest LEAP Coffee, Lorenzo Casaburi (Zurich University), author of “Land Rental Markets: Experimental Evidence from Kenya”, illustrated some of the first experimental evidence of the fact that interventions can successfully incentivize land market participation.
 
The study focuses on the effects of incentivizing land market participation in Kenya, by randomizing selected land-owners into three arms of intervention. The experiment aims at producing evidence to address some open questions regarding land markets in Sub-Saharan Africa, the answers of which may provide more information about the underlying frictions.
 
A baseline survey showed that the main reason preventing people from renting out their land was search costs, with 25% of the owners keeping at least one plot uncultivated. The survey was used to identify those with at least 2 plots and willing to rent out an additional one in exchange for a subsidy. The sample was restricted to such potential compliers and, in particular, to the target plot they mentioned. It was subsequently randomized into three groups: one was offered subsidies to rent out one of their plots, mimicking a marginal improvement in land market efficiency; the second was granted an unconditional cash transfer to control for income effects; the third was a control group.
 
Results show a significant and large impact of the subsidy on rentals of target plots, evidence of the fact that the intervention successfully incentivized land market participation. Concerning the distributional implications, there seems to be a reallocation of land to land-poor individuals. That is to say, renters on average own fewer plots than owners, while the two groups are not significantly different in terms of non-land wealth. This result rules out the hypothesis that a more active land market may only go to the advantage of individuals who are already land-rich and looking to expand. Additionally, renters seem to be more entrepreneurial, with the subsidy increasing likelihood of cultivation of commercial crops, in turn strongly increasing the harvest value.
 
The study is not meant to offer policy suggestions. However, as one of the first experiments on the topic of land market frictions in Sub-Saharan Africa, it provides novel insights on the mechanisms behind land market imperfections.

by Diva Barisone