CREDIT Seminar: Jonathan de Quidt (IIES Stockholm)

Market design for land trade: Experimental evidence from Kenya and Uganda

Abstract: Agricultural land in many low-income countries is inefficiently allocated, and reallocation through existing land markets is slow. We study two potential market design improvements: market centralization, and the use of combinatorial ("package") exchanges, using structured surveys and framed field experiments. Farmers agree that there exist unexploited gains from trade, and highlight the importance of land fragmentation and misallocation. Our first experiment finds low trading efficiency in a free-form trading game that mimics status quo land markets. A "trading day" centralization intervention substantially increases efficiency, mostly through reduced fragmentation and reduced trade breakdown. Our second experiment finds high efficiency in basic computerized double auctions. Efficiency further increases when we allow combinatorial bids, in particular by reducing misallocation. Inequality of outcomes is also reduced by both treatments. We conclude that there is great potential for market design improvements to unlock efficiency gains in real land markets, and that even complex mechanisms can be implemented in ways appropriate for realistic participants.