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Oxford Economic Papers 56 (2004), 151-166
© Oxford University Press 2004; All rights reserved

Credit access and transferable land rights

Eric Van Tassel*

*Department of Economics, Florida Atlantic University, 5353 Parkside Drive, Jupiter, FL 33458, USA; email: vantasse{at}fau.edu

This paper develops a model in which small landholders earn a return from their land but can increase their income by borrowing funds to invest in a risky project. The model allows us to study the impact of different legal policies governing the use of land as collateral in debt contracts. In this framework, we find that legislation sanctioning the use of land as collateral can sometimes have unintended consequences. In particular, when farmers and banks have asymmetric valuations over land plots, introducing collateral based loans can lead to a reduction in the number of low-risk farmers that choose to borrow funds. This finding offers one explanation for why farmers in countries like Bolivia and Mexico have resisted policies that promise to facilitate the use of land as collateral.


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