Land Markets in Economic Theory

In this work, both neoclassical theory and New Institutional Economics are applied in an approach to understand the market as an institution of exchange. It is a particular market that is chosen here which, of course, makes the results not universally applicable - especially since the market concerned here is a factor and not a commodity market - but the approach may be of use as an example of a try to define a market. This thought leads to the question of why it is this particular market - the market for agricultural land - that has been chosen as the subject of analysis here. Land may not be considered to be such a crucial production factor in countries where secondary and tertiary industries that are not extremely land-dependent produce most of the GDP and employ the vast majority of the people. In most third world and many transition countries, however, the importance of agriculture is still very high and, thus, the question of who has access to and control over land is of vital importance. Deininger/Feder (1998: 1) point out that "in agrarian societies land is [...] the main means for generating a livelihood" and "the way in which land rights are assigned therefore determines households' ability to produce their subsistence and generate marketable surplus". Where certain people or groups of people are systematically prevented from or restricted in their access to land, serious differences in economic status between those who do and those who do not have the possibility of acquiring land are likely to result. This situation is aggravated by the fact that land performs more economic functions than just that of a production factor. Additionally, it is a means "to accumulate wealth and transfer it between generations" (ibid.) - especially when other ways of accumulating savings are insecure or not present -, an insurance for old age or times of hardship and a collateral to satisfy the security requirements of financial markets.