The Political Economy of Rural Property Rights and the Persistence of the Dual Economy

If property rights in land are so beneficial, why are they not adopted more widely? I propose a theory based on the idea that limited property rights over peasants' plots may be supported by elite landowners (who depend on peasants for labour) to achieve two goals. First, like other distortions such as taxation, limited property rights reduce peasants' income from their own plots, generating a cheap labour force. Second, and unlike taxation, they force peasants to remain in the rural sector to protect their property, even if job opportunities appear in the urban sector. The theory identifies conditions under which weak property rights institutions emerge, providing a specific mechanism for the endogenous persistence of inefficient rural institutions as development unfolds. It also predicts a non-monotonic relationship between the quality of rural property rights and land in the hands of peasants.