Property Rights, Contracts, and Technology Adoption: Evidence from Ethiopia

• Development Workshop

Date and Location

Monday, October 13, 2014, 4:10 PM - 5:30 PM
ARE Conference Room, 2102 Social Sciences and Humanities

Abstract

The study explores how changes in property right regimes influence the adoption of new technology when there is uncertainty regarding the returns of the technology and imperfections exist in the credit and insurance markets. I argue that in addition to reducing the risk of expropriation, an important mechanism through which improved property rights influence technology adoption is by altering the optimal contractual arrangements economic agents enter into, but the magnitude of this impact depends on the degree of credit market imperfections and production uncertainty that prevail in the economy. I examine these issues in the agricultural sector in a developing country setting and show that by reducing both tenure insecurity and transaction costs, credible land title reforms provide incentives for farmers to move towards land and labor contracts that encourage the adoption modern fertilizers. I test these propositions using panel data from Ethiopia which introduced legislation that gave farmers perpetual land use rights aimed at improving their tenure security. Following the hypothesis, I attempt to empirically disentangle the direct impact of improved tenure security on technology form its indirect impact on the latter through its effect on land and labor contracts. The econometric results demonstrate that the impact of land reforms on agricultural productivity would be more pronounced if these reforms are accompanied by policies that address imperfections in the credit, insurance, and land rental markets.