Case study
Can Market Design Help the World’s Poor? Evidence from a Lab Experiment on Land Trade.
BUSARA GROUNDWORK
Financial Inclusion
Field and Lab Experiments
BEHAVIORAL THEME
Productivity | efficiency | inclusion
OVERVIEW
This study looks at the inefficiencies in agriculture in low-income countries, particularly related to land allocation and fragmentation. We present findings from two lab-in-the-field experiments conducted in Uganda and Kenya to test the effectiveness of trading rules in addressing these issues.
The experiments reveal that current land markets suffer from thinness, exposure risk, and coordination frictions, hindering decentralized trade. However, implementing improved market designs, such as centralized interventions and computerized package exchanges, significantly enhance efficiency without increasing inequality. The results emphasize the potential of tailored market design to reduce frictions, improve productivity, and unlock gains for smallholder farmers.
Improved market design can address these challenges by creating trading rules that specifically target fragmentation and misallocation. The experiments provide evidence that decentralized trade is inefficient, but the introduction of tailored market designs significantly improves outcomes. The findings suggest that market design interventions can offer a promising alternative to top-down land consolidation programs, leveraging voluntary trade and farmers’ preferences to enhance the functioning of land markets and promote equitable outcomes.
