Cultivate or Rent Out? Land Security in Rural Thailand

In the 1980s, the Thai government tried to legalize squatters living in certain geographical areas by issuing special titles that allowed for cultivation but restricted the sale and rental of the land. Using data from 2,874 farming households collected in 1997 and a differences-in-differences empirical strategy, we compare the differential rental rates between secured and unsecured plots in reform and non-reform areas. In reform areas, households are more likely to lease secured plots and cultivate unsecured plots. In addition, using land rental rates and prices, we estimate a 6 percent premium due to expropriation risk. In other areas, however, land rights do not influence leasing decisions and no risk premium is found. These results indicate that this property rights reform distorted the land rental market by triggering a sense of insecurity among owners of undocumented land. Since the program targeted more developed areas, our results may underestimate the true negative impact of the reform.