Research Projects

Background and Motivation This study aims to understand how farmers value their land parcels when facing a certain prospect of land sale due to government acquisition for redevelopment. Land assembly is one of the most critical reallocation challenges in developing countries like India. Large tracts of land are required for infrastructure projects such as highways, metro rail, manufacturing facilities, and special economic zones. A typical instance may involve procuring land from hundreds of farmers. Historically, the state has acquired land under eminent domain, allowing it to override private dissent. Many such acquisitions have sparked complaints and protests over inadequate compensation and forced evictions. The widely known cases of Singur and Nandigram in West Bengal arguably set back the state’s industrial growth for decades. The Land Acquisition, Rehabilitation and Resettlement Act (LARR) of 2013 was a legislative response shaped by such episodes. Yet, key questions persist—especially regarding the basis for pricing and compensation. In the absence of clear principles, analysts question the arbitrariness of valuations and markups. We propose an empirical approach to identifying appropriate compensation in land assembly involving nonstrategic farmers. The central challenge lies in the fact that farmers’ valuations are private and subjective. Our study aims to uncover how farmers actually form these valuations. Objectives 1.When a farmer receives a price offer for his land, what benchmark does he use to judge whether it represents a gain or a loss? How much variation exists across benchmarks? Is there a benchmark most farmers agree on? 2.When a farmer is forced to accept an offer he perceives as a loss, how can we quantify the resulting welfare loss? How do attitudes toward such losses vary across farmers? A well-defined reference point allows the policymaker to mandate that compensation meet or exceed it, and to evaluate two core policy performance metrics: (i) Property rights protection: the share of farmers compensated at or above their reported reference point. (ii) Seller welfare: aggregate welfare gains and losses across farmers. Under a policy that pegs compensation to the modal reference point, many farmers with different individual benchmarks may still experience gains or losses. Their reported reference points and loss attitudes allow the policymaker to quantify these effects and simulate the welfare outcomes of alternative compensation rules. Methodology We find the framework of reference-dependent preferences (Tversky A. and Kahneman D (1992), see Chapter 1 in Bernheim et.al. (2019) or Chapter 2 in Dhami (2016) for a good summary) to be a good behavioral model in which to place our inquiry. Let U be the utility to a landowner of parting away with her land parcel of certain size at a price p. Then using the two-part linear functional form in the framework of reference-dependent preferences, we model U as U = v(p|r) = p – r if p greater than r, and = L(p-r) if p less than r Where v is the gain-loss utility, r is the reference point, and L greater than equal to 1 is the loss-aversion parameter. Within this framework, there are two parameters to be studied – the reference point and the loss aversion parameter. We plan to elicit the reference point through a survey, and the loss aversion parameter through a field experiment. Note: Since our experiment is not in a strategic environment, we believe we can better elicit true loss aversion parameter.