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This paper analyzes the effects of insecure property rights over land on the functioning of the land rental market in the Dominican Republic. It shows that insecurity of property rights not only reduces the level of activity of the land rental market, but also causes market segmentation. A principal-agent framework is used to model the utility maximization of both the tenant and the landlord, where the landlord accounts for the risk of losing the land when it is not traded within a narrow local circle of confidence. Using data collected with a new methodology that enable the entire market to be characterized, we show that insecure property rights lead to matching in the tenancy markets along socio-economic group and hence severely limit access to land for the rural poor. Our results also show the importance of a minimum endowment of assets to obtain access to land in the rental market.
