Impact of Land Titles over Rural Households

Property rights are seen as a prerequisite for economic development and poverty reduction essentially because improvements in land rights are assumed to reduce the risk expropriation, increase the possibilities of trade of land, and reduce credit rationing. If property rights are not clear there is a significant risk of expropriation which acts like a random tax on returns of investment affecting the level of investment as well as the composition of the investment. Moreover improvements of rights act as reductions in transaction cost and therefore also increase the probability of trading land. Similarly, in competitive credit markets titling encourages lenders to recognize land as collateral reducing the risk premium on lending and hence reducing the restrictions to access and interest rate faced by the poor borrowers. In credit markets with imperfections collateral can reduce agency problems and therefore improve access to credit. The Peruvian rural titling program, PETT, distributed property titles to over 1.1 million rural households, and is possibly one of the largest formalization program targeted to rural areas in the developing world, provides a dramatic natural experiment for testing the channels through which the titles can impact households welfare. This paper conducts an evaluation of the impact over households of having access to a PET title on the reduction of risk of expropriation, gains from trade of land, credit access, including the likelihood of obtaining formal credit, and provision of public goods at the level of the neighborhood. Because the quasi-random program implementation in large measure breaks the link between title acquisition and the variables behind the four channels of impact identified (investment in the household or plot, trade in land, credit demand, and provision of public goods), we are able to construct plausible comparison groups in program and non-program regions via propensity score techniques and use kernel-based matching to estimate the average treatment effect of government property titling. This paper develops a unique new dataset for all rural Peru, which is also a full panel for the LSMS 2000 and partial panel with LSMS 1997. Our results shed light and yield useful insights on the potential impact of titling efforts on investment, security, financial market integration and the provision of local public goods in poor rural communities of Peru.