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This draft paper outlines a strategy for World Bank involvement in land policies. It focuses on property rights to land, land transactions, and socially optimal use of land. The report recommends three principles which land policy should aim to promote:it should help to realize the potential of the private sector who will have to be the main engine of growth and who will greatly benefit from clarity in the assignment of property rights and low transaction costs and all the benefits associated with thisgiven that land policy has in the past often severely discriminated against the poor, specific actions to
empower this group are justified to provide them with equal access to economic opportunitiesan appropriate land policy implies a very important role for government to provide the basis for functioning of markets, to regulate such markets, and to provide public goods.On property rights to land, key conclusions include:Socially accepted and low-cost mechanisms of managing and resolving conflict so as to reduce its socially disruptive and investment-reducing impact, and to prevent it from escalating into large-scale (ethnic) confrontation, are likely to become of increasing importance, especially in Africa. effective protection of property rights can have a considerable positive impact on equity as well as efficiencyhigher levels of tenure security will greatly increase the incentives for land-related investment and will induce better land management.the fundamental role for government is to provide with tenure security to land through both legal measures and the effective implementation of these in institutions. While individualization of land rights is a more efficient arrangement in many circumstances, there are many cases (e.g. for indigenous groups, herders, and marginal agriculturalists) where definition of property rights at the level of the group, together with a process for adjusting the property rights system to changed circumstances where needed, can help to significantly reduce the danger of encroachment by outsiders while ensuring sufficient security to individuals. As long as groups can internally decide on individuals’ resource access and other issues following basic conditions of representativeness and transparency, securing group rights can contribute to better and more sustainable land management as well as more equitable access to productive resources.On land transactions, land sales and land rental markets are found to have different advantages and shortcomings. Key conclusions include:Land rentals can provide access to land in a low-cost fashion as a response to exogenous shocks, off-farm employment, changing
opportunities and interests, or even in situations where the final ownership status of land is still being clarified. In most situations, rental markets (including share cropping arrangements) improve the allocation of land and enhance equity. Where property rights are not secure, land owners will not be willing to rent out under longer-term contracts. The impact of rental markets on equity will depend on the way in which the surplus is shared between landlord and tenants, something that is dependent on the alternative opportunities open to the latter. Even though the transaction costs associated with land rentals are normally lower than those in sales markets, there are opportunities to reduce them by making information on land ownership, contractual forms, and prices more widely available.Land sales markets are normally associated with much higher transaction costs than are land rental markets. Acquiring land through purchase requires a considerable outlay of cash which may be out of reach for households who do not have access to non-agricultural income. In situations where markets for credit and insurance are imperfect, the supply of land in the sale market may be mainly through distress sales. Distortions which favor larger farmers, as well as the tendency of land prices to exceed the capitalized value of agricultural incomes from land imply that, even in situations where there is a strong productive advantage of small farmers, the contribution of land sales markets to bringing about a farm size distribution that is more efficient and more equitable may be limited.Government imposed restrictions on land market transactions have not yielded the expected outcomes because they were difficult to enforce, and in fact the restrictions resulted in efficiency losses. The conclusions from this are that:there is very little merit to land rental restrictions and the only relevant policy question is how to sequence their elimination in a way that minimizes disruptions and negative equity impactsin most settings it will be unrealistic to assume that restrictions on the functioning of markets will lead to significant re-distribution of land and other productive assets to the poor. Other mechanisms will be required to accomplish this with the possible exception of very loosely defined restrictions on maximum farm sizes, universal limitations on sales markets are unlikely to be effective but may lead to the emergence of large bureaucracies that develop a self-interest in the maintenance of these restrictionscohesive communities may impose restrictions on
transferability of land to outsiders at certain stages of their development out of a concern for social harmony and the prevention of landlessness. Policy should ensure that the mechanisms for reaching such a transition are transparent and representative, and that changes in such rules are feasible where they do no longer serve the interest of the majority of community members.Recommendations on how to contribute to socially optimal use of land include: land reform policies need to be embedded in a broader strategy for recipients’ productive development, which decentralizes as much responsibility as possible, and which (while transferring wealth to the poor), adheres to basic principles of constitutionality and fairness.regulation to avoid socially and environmentally harmful outcomes and to ensure that externalities are internalized, is justified. This includes mechanisms to ensure the protection of fragile environments which, through various channels (biodiversity, hydrological flows, carbon sinks), provide local or global public goods.Government regulation is also critical in peri-urban areas, in two respects. On the one hand, there need to be provisions to avoid externalities and provide public goods, including green-spaces and the preservation of unique historical and cultural values. On the other hand it is important to have mechanisms in place to facilitate that land for urban expansion and the associated services will be available in a cost-effective way and therefore be accessible to the poor.[adapted from author]
