formalized in a number of theoretical models where lack of collateral keeps individuals in "poverty traps", unable to undertake highly profitable indivisible investments (Galor and Zeira 1993,Eckstein and Zilcha, 1994).2 In such a setting, the poor would fail to get out of poverty not because they are inherently less productive or lack the necessary skills, but because informational imperfections preclude them from access to credit markets and because, as a consequence, they never get the opportunity to utilize or fully develop their abilities. If this is true, a one-off redistribution to low wealth groups could strictly dominate other policy instruments (Hoff and Lyon, 1994). In particular it will, in the medium to longer term, be more effective and less costly than continuing redistribution of income (e.g. through social programs) which would be associated with strong disincentive effects (Banerjee and Newman 1993; Mookherjee 1997).

Support for the importance of asset (and income) distribution for economic outcomes is provided by cross-country regressions which indicate the presence of a significant negative impact of the initial _asset_ distribution on subsequent economic growth (Birdsall and Londono 1997). This growth-reducing impact is particularly severe for the poor (Deininger and Squire 1998). Indeed, overall inequality seems to have an important impact on societies' ability to effectively and quickly respond to exogenous shocks (Rodrik 1998), the level of crime (Fajnzylber et al. 1998), and the degree to which special interest groups are able to appropriate rents -with implications for overall productive efficiency (Banerjee et al. 1997).

Although inequality may significantly affect economic performance, historical examples for major changes of inequality within a country are rare (Li et al. 1998). More specifically, the success of land reform was critically dependent on the form of production into which it was introduced. In _landlord estates_ where tenants already cultivated the land and all that was required was a reassignment of property rights, land reform was relatively straightforward and associated with significant productivity increases and the emergence of stable systems of production? The main reason is that the organization of production remained the same family farm system, and that beneficiaries already had the skills and implements necessary to cultivate their fields. Organizational requirements of conducting such land reforms were minimal -making them comparable to the "stroke of a pen" reforms familiar from the literature on macro-economic reform. Indeed, since the end of World War II, landlord estates in Bolivia, large areas of China, Eastern India,

> **2** Though still accumulating, empirical evidence does support some of these conclusions (Jalan and Ravallion, 1997, Fafchamps and Pender 1997).

> While it would be desirable to have more studies examining the productivity impact of such reforms in quantitative terms, there is agreement in the literature that such reforms have been associated with significant increases in output and/or productivity Callison 1983; Koo 1968; King 1977, Lieten 1996, Besley and Burgess 1998,Domer and Thiesenhusen 1990, Otsuka 1991).

4