Reassessing the interaction between investment and tenure uncertainty

Abstract

A diverse body of empirical literature recognizes that investment can influence tenure security, yet this phenomenon has rarely been examined analytically. This paper develops a theoretical model that demonstrates explicitly conditions under which the probability of eviction is endogenous to investment undertaken on illegally encroached land. By accommodating explicitly the government's objective function and its ability to commit credibly to an eviction policy, the model reveals why both those farmers who under-invest, and those who raise their investment levels to improve tenure security, may be behaving rationally. Indeed, both types of behaviour are accommodated within a single model.