Titles, Conflict and Land Use: The Development of Property Rights and Land Reform on the Brazilian Frontier

Published by EH.NET (July 1, 2000)

Lee J. Alston, Gary D. Libecap and Bernardo Mueller, Titles, Conflict and

Land Use: The Development of Property Rights and Land Reform on the Brazilian

Frontier. Ann Arbor: University of Michigan Press, 1999. xiv + 227 pp.

$49.50 (cloth), ISBN: 0-472-11006-3.

Reviewed for EH.NET by D. Bruce Johnsen, George Mason University School of Law.

Titles, Conflict, and Land Use comes very close to being a tour de

force. The authors provide a careful and largely convincing theoretical and

empirical analysis of both the evolution of property rights to land and the

determinants of violent conflict on the Brazilian frontier. Although the book

has important policy implications — most notably that a failure of private

property rights, and not corporate capitalism, is probably the main threat to

the Amazon rain forest — the authors downplay policy analysis in favor of

hypothesis testing. This book is essential reading for development economists,

economic historians, public choice economists, serious environmental scholars,

and followers of New Institutional Economics. I also recommend it to those

interested in the evolution of property rights in cyberspace or any other new

frontier.

Several of the book’s early chapters address the history and current structure

of Brazilian land policy, describing in detail the relevant legal, regulatory,

constitutional, and political institutions that have influenced frontier

settlement. Brazil’s land holdings have always been highly concentrated owing

to a system of large land grants the Portuguese Crown made to promote early

settlement. The Crown issued these grants under the condition that recipients

put the lands into beneficial use, but due to low land values over the long

course of time this condition has rarely been met or enforced on the frontier.

Beginning in the 1930s, the modernization of Brazilian agriculture led to

widespread agrarian unemployment, a large and growing class of poor landless

peasants, and corresponding social unrest. Given the large tracts of idle and

unproductive frontier land, public sentiment and political favor eventually

turned to land reform to achieve social justice (and quite possibly social

efficiency) by reducing the inequitable distribution of land holdings. Despite

organized and often successful resistance to land reform by large landholders,

the current Brazilian constitution allows the federal government to expropriate

private lands that have not been put into beneficial use.

Land reform policy is now carried out primarily by INCRA, a federal agency

created in 1970 to administer frontier settlement. INCRA performs its mission

largely by organizing settlement on public lands, expropriating unproductive

private lands for settlement by squatters, and securing title for settlers. As

it turns out, organized squatter groups have become increasingly adept at

controlling the land reform agenda by planning effective invasions of likely

parcels and using violence strategically to induce INCRA to press for

expropriation. Although Brazilian statutory law requires that owners of

expropriated land receive just compensation, in practice landowners are

unlikely to receive fair market value. This prospect often leads them to resist

squatter invasions through various legal or extra-legal means, such as eviction

or armed intimidation, all of which are costly and likely to lead to violent

conflict.

To explain the evolution of frontier property rights, the authors develop an

analytical framework in which land values decline with distance from the

central market and the differential value between titled and untitled land

rises with land values and declines with distance. The data clearly support

these underlying relationships. Further empirical analysis reveals that the

length of a settler’s tenure on a plot substantially increases the likelihood

the plot will be titled, that title clearly has a positive effect on

land-specific investment, and that land-specific investment dramatically

increases land value. In cases involving a squatter invasion, the participation

of a squatter organization significantly increases the likelihood of

expropriation, and the percentage of a landholding that has been cleared (a

proxy for beneficial use) significantly reduces the likelihood of successful

expropriation. This naturally leads landowners to clear their lands to

strengthen property rights.

The authors infer from the evidence that INCRA tends to undertitle high-valued

land claims near market centers, possibly because INCRA’s performance is judged

on the number of families initially settled rather than on the quality of the

final settlement project. Although this is surely plausible, the inference

seems premature because we have no measure of the value of INCRA’s scarce

resources in alternative activities and because we know very little about the

costs and benefits of establishing title relative to alternative institutions.

To explain the determinants of violent conflict, the authors develop a

game-theoretic model with three possible outcomes from squatter invasions: the

landowner may evict the squatters, INCRA may expropriate the parcel for the

squatters’ benefit, or the squatters may remain on the land indefinitely with

no expropriation. The probability the landowner evicts the squatters increases

with what the authors characterize as “landowner violence,” and the probability

the squatters either remain on the land indefinitely or mobilize a successful

INCRA expropriation increases with “squatter violence.” The authors use this

model to generate comparative statics regarding the effects on landowner and

squatter violence from changes in the level of property rights security,

changes in land values, parametric shifts in the parties’ cost functions, and

changes in the positions of the courts regarding evictions.

My main concern with the model is that it assumes each side understands the

rules of the game and knows the relevant probability functions, valuations, and

costs. With full information, however, why would violence ever occur? What the

authors characterize as violence is really an input provided by the parties to

encroach or resist encroachment and bears no necessary relationship to actual

violent conflict, which is an outcome. By failing to account for this, the

authors neglect the selection effect so familiar to law and economics scholars

in explaining which legal disputes are selected for litigation. A legal rule

more favorable to plaintiffs, say, a change from negligence to strict liability

for injuries due to defective products, will not necessarily lead to more

litigation (violence). It simply shifts the parties’ expectations and changes

the character of the disputes that get litigated.

The authors recognize earlier in the book that “there must be some uncertainty

in the outcome that contributes to violence.” But uncertainty, alone, may not

be enough if the parties hold identical expectations. Rather, asymmetric

information about probabilities, valuations, or costs seems necessary to

generate violence conflict. A model capable of explaining violent conflict

might hypothesize two different types of landowners and squatters — say,

aggressive and passive — with each group receiving a costly signal about the

other’s type that is accurate on average but subject to imperfectly correlated

errors. Violence occurs when the parties hold mistaken beliefs about one

another’s type.

From this perspective, violence is a costly but effective method of correcting

mistaken signals. Conditional on land reform policy, violence might even be

seen as a socially efficient signaling mechanism compared to the alternative.

Apparently, the alternative is for INCRA to expropriate private lands and then

match settlers to those lands in an orderly process free from violence. The

success of squatters in controlling the matching process through organized

invasions suggests that INCRA is incapable of efficiently generating the

necessary information. For all its drawbacks, a process of targeted invasions

backed by the threat of violent conflict may be superior.

This hypothesis has testable implications, the most obvious of which is that

the parties will have a mutual interest in minimizing information asymmetry and

the associated social losses from violence. By categorizing land disputes

according to various characteristics, we should be able to predict that

information asymmetry will decline as a given category of disputes recurs and

the parties learn. New categories of disputes reflecting a different

combination of characteristics than has previously been witnessed will be most

prone to violent conflict, while routine categories of disputes will be the

least prone to violent conflict. I cannot resist noting that the common ability

of human beings to recognize patterns and to reason by analogy allows them to

anticipate outcomes and to avoid or minimize costly signaling. This knowledge

is a public good that appears subject to network effects and may be one

plausible explanation for how human beings have escaped the infinite regress

problem, in which all rents are dissipated. That the rule of law, which

institutionalizes this knowledge by relying on precedent, is strongly

associated with wealth accumulation should come as no surprise.

According to the asymmetric information hypothesis, the magnitude of changes in

land values, rather than the level of land values, should be associated with

information asymmetry and should lead to an increase in violent conflict.

Indeed, the authors include a measure of land value changes in their empirical

analysis of violent deaths and its coefficient is positive and marginally

significant. If available, the variance of land values in an area might have

even greater predictive power.

The presence of INCRA in an area should increase information asymmetry and

violent conflict. Although INCRA might act predictably under normal

circumstances, as land disputes escalate there comes a point at which public

sentiment leads INCRA to dramatically change its stance in favor of supporting

squatters. Through some range, it therefore seems plausible that landowner and

squatter expectations regarding INCRA involvement will differ, leading to

violent conflict. According to the authors’ empirical work, the presence of

INCRA in an area has a large and highly significant positive effect on violent

deaths.

Additional measures of information asymmetry might be the presence of

overlapping agency jurisdiction, changes in law or judicial sentiment, and

changes in political administration. Early on in a squatter organization’s

existence we should expect more violent deaths in the disputes it organizes,

but over time this effect should diminish as the organization gains a credible

reputation.

The authors may be correct in conceding that land reform is in some broad sense

socially efficient, but this should translate into the inference that settling

the large population of unemployed landless peasants on the Brazilian frontier

can somehow be made privately efficient for frontier landowners. Why, in spite

of their considerable political influence, have they been unable to accomplish

this through sharecropping or land rental arrangements? I can even imagine a

group of neighboring landowners agreeing to give away a portion of their lands

to settlers in hopes that doing so would expand the market and generate

improvements in infrastructure sufficient to compensate for their ceded lands.

An entertaining explanation for this failure is that through some kind of

invisible hand process the owners of Brazil’s frontier lands have been

inadvertently acting to forestall the familiar rent dissipation from premature

settlement. But with the Brazilian government unable to credibly commit to

enforcing landowners’ claims, in what might be characterized as an episode of

Malthusian rational expectations rent dissipation took the form of a large

buildup in the population of unemployed peasants that ultimately overwhelmed

landowner interests. Land reform is then seen as the political manifestation of

the race to first possession.

D. Bruce Johnsen is author of “The Formation and Protection of Property Rights

Among the Southern Kwakiutl Indians,” Journal of Legal Studies 15: 41-67

(1986).