The homogenization effect of land titling on investment incentives: evidence from Peru

Land titling programmes have been widely promoted as a necessary condition for enhancing farmer's incentives to invest in their land. The justification for public intervention of this type is increasingly questioned on the grounds of its limitation to replace or improve the effect of informal or customary rights already in place. If the main aim of the programme is to formalize previous land rights and its procedure is based on the recognition of informal documents and reliance on community rules, it could in fact contribute to increased farmer's tenure security and therefore boost land investments. We explored this relationship for a sample of Peruvian farmers who were part of a state-led land titling programme that shared the aforementioned characteristics. Using retrospective information on the type of informal documents that parcels had before the start of the programme we were able to categorize the parcels at two levels of initial tenure security. The effect of titling on investments was then analysed for these two groups, using a difference-in-differences estimation technique. The results show that there is a positive effect of titling on the probability of making investments as well as on the value of investments for both groups of parcels, but also prove that the impact of titling is greater for parcels with previously low levels of tenure security. This effect could be almost entirely attributed to changes in farmer's willingness to invest and not to better access to credit.