Land Market Distortions: Theory and Evidence from Guatemala

Farm size and land allocation are important factors in explaining lagging agricultural productivity in developing countries. This paper formally examines the effect of land market distortions on the allocation of land across... [ view full abstract ]

Farm size and land allocation are important factors in explaining lagging agricultural productivity in developing countries. This paper formally examines the effect of land market distortions on the allocation of land across farmers and overall agricultural productivity. We first develop a theoretical framework to model the optimal size distribution of farms and to determine to what extent market distortions can explain the non-optimal allocation of land. We then calibrate the model to the case of Guatemala and evaluate potential drivers of the distortions across regions. Preliminary results find that the aggregate agricultural productivity is 75-80% of the efficient output. We discuss alternative policy implications to improve land markets efficiency.