assets is entirely insignificant, with point estimates close to zero. In column (4) we replace income and assets with a combined measure of household socioeconomic status, based on the first principle component of five variables: income, assets, average schooling of the adults in the household, household size, and parcel area. This proxy for socioeconomic status shows no significant effect on take-up and the coefficient on its interaction with price is almost precisely zero. This result, combined with the linearity tests in Appendix A suggest that a linear model with additively separable price and income terms provides a reasonably good approximation of take-up.

# **4.2 Discussion: Price discrimination and pro-poor targeting**

We now apply our elasticity estimates to a very simple model of a government with a monopoly on the issuance of land titles, which chooses the price of land titles to maximize revenues from sales and property taxes. This somewhat pessimistic framework ignores governments’ responsibility to make investments in public goods which may have a long run economic payoff beyond short-term revenues through fees and taxes. Nevertheless, the model’s assumptions allow us to provide a positive analysis of the Tanzanian government’s titling policies, and to use these demand elasticity estimates to weight the prospects for land titling in urban Tanzania: Consider the supply decision faced by the Tanzanian Ministry of Lands. We posit that the government is primarily concerned with the direct fiscal revenue from selling titles, and secondly with the increase in future property tax revenues from formalization.

As a monopoly supplier of land titles, the Tanzanian government has the power to set prices and, potentially, engage in significant price discrimination. Based on conversations with Ministry of Lands officials, the government’s objective function appears to be well approximated by profit maximization from the sale of land titles and property tax collection.<sup>12</sup> Officials insist that land formalization can only proceed where “full cost recovery” is foreseeable. Note that the implications of profit maximization may be observationally equivalent to a model where titling policy is designed to maximize opportunities for rent extraction by government officials, town planners, and land surveyors.

The costs of large-scale land titling are largely fixed costs. Once the Ministry has decided to systematically demarcate a certain ward or sub-ward, the marginal cost of titling an individual parcel of land quickly approaches zero, driven partially by the simple geometry of doing cadastral surveys of contiguous parcels. The large upfront costs of designing a new town plan with allowances for future roads, parks, and other infrastructure, and of passing the plan through national, regional, municipal, and local political bodies is invariant to the number of properties titled. Thus, conditional on deciding to supply land titles in a given neighborhood, profit maximization is well approximated by revenue

> 12We are deliberately vague with the term “government.” In recent years, some aspects of land formalization in urban areas have been devolved from the Ministry to municipalities. Thus, our model with a unitary decision-maker is a simplification of the actual political economy at work.

16