Property Rights and Investment Incentives: Theory and Evidence from Ghana

TLDR

The study investigates how property rights influence investment incentives, including the possibility that farmers improve land rights and proposes tests to determine which theoretical mechanisms are operative. The authors develop three theoretical mechanisms—security of tenure, land collateral, and trade gains—while also exploring endogenous rights and proposing empirical tests. Empirical evidence from two Ghanaian regions is presented to test the theoretical mechanisms.

Abstract

This paper examines the link between property rights and investment incentives. I develop three theoretical arguments based on security of tenure, using land as collateral and obtaining gains from trade. The paper then presents empirical evidence from two regions in Ghana. I investigate the possibility that rights are endogenous, with farmers making improvements to enhance their land rights. Finally, I suggest tests for which of the theories might explain the results.