It is a widely held belief that establishing secure property rights and granting fair access to land are key drivers of economic development. If people possess small buildings and plots of land, they will enjoy better incentives to invest and can use these real assets as collateral for credit. Various governments, along with international development agencies, have implemented a range of interventions to formalize existing land rights. In the BSE working paper 1271 titled “Land Titling and Litigation,” Benito Arruñada, Marco Fabbri, and Michael Faure shed light on the consequences of this formalization process.
The paper aims to tackle some of the discord in the academic debate on the net impact of formalizing property rights. Using data collected in Beninese rural villages, the authors investigate the impact of increased land registration on land-related disputes. Specifically, they look at whether litigation increases or decreases in response to the land titling reforms.
A unique land titling reform design
Through their research design, the authors can identify a causal effect of policy reform on land-related litigation, which is rarely achievable within the literature. The paper studies the effect of a land tenure reform named “Plan Foncier Rural” (PFR), which was implemented across rural Benin. This policy reform provides a solid identification strategy since it is a unique example of a large-scale land tenure reform implemented as a randomized control trial (RCT). The paper makes use of data collected firsthand through two rounds of in-depth surveys conducted seven and ten years after the reform’s implementation.
There are two key features of the program, which are the foundation for the paper’s identification strategy. Villages were invited to participate in the scheme, and from those villages judged to have met a set of criteria, 300 villages were randomly chosen via a public lottery. The remaining villages to this day continue to have customary land rights. The RCT program design enables the authors to calculate the average treatment effect of the reform.
Secondly, since the program aimed for universal coverage, all valuable land within a village was registered, irrespective of its value. However, due to limited resources, unforeseen complexity, and legal deficiencies, the title purging process was left incomplete and the titles awarded were often imperfect.
Litigation as an externality
Given the set of treatment and control villages, the authors first examine the likelihood of experiencing land-related litigation after implementing the PFR reforms. Figure 1 shows that participants in treated villages report experiencing land-related litigation significantly more often than those in the control group.
The authors extend this analysis with a linear probability regression model. Controlling for village characteristics, they find that the coefficient on a dummy variable that captures whether the individual was subject to PFR reform or not is positive and significant. They estimate that participants subject to the PFR reform were approximately 75% more likely to experience land-related litigation.
The primary cause of these land-related disputes was contested land boundaries. However, the authors also observed a significant increase in disputes over land inheritance. On a strong positive note, there was no significant increase in violent land-based conflicts or in beliefs that land-related disputes can escalate into violent episodes following the reform.
Litigation on low-value land
To dive deeper, the authors explain the observed patterns of increased litigation in treated villages. Before the official land registration, owners can improve their claim and make their title safer by making public or private investments, reducing the probability of losing their land. This leads to a typical economic argument of efficiency; landowners will make investments to clarify existing rights only for that land whose value increases by more than the cost of these additional investments.
Given this fact, the authors propose that the increase in litigation is to be expected on lower-value land since those with high-value property had previously invested and secured their rights. This hypothesis is put to the test by examining whether the land of different values and productivity were affected differently by the PFR reforms.
They find that amongst high-value land samples, no significant difference between the level of litigation in the treatment and control groups existed in this data. On the other hand, when comparing low-value land, the likelihood of experiencing litigation after the PFR reform increases for the treatment group compared to the control.
The authors argue that the reform, by registering all land parcels in a village irrespectively of their value while also awarding incomplete land titles, increased demand for litigation. This litigation was utilized to clarify existing rights. Precisely due to the economic reasoning that the more valuable the land in question, the more likely that the owner had already taken action to secure their property rights, the authors see no discernable treatment effect for high-value land. It was not profitable for the owners of lower value land under the conventional system to invest in such protections. Therefore they were incentivized to litigate when the formal registration process began.
The authors point out that the increase in litigation is not necessarily a negative outcome since many disputes led to a beneficial clarification of ownership rights. Overall, the findings presented by the authors emphasize the importance of increased litigation as a potential externality when designing tenure reforms. They show that litigation can complement formal land titling in the process of securing a region’s property rights.