productivity impacts of land markets and assess the extent to which imperfections in markets for credit and insurance may lead to undesirable land sales.

There are three key findings. First, the fact that the producers’ propensity to participate in land sales markets was significantly increased by the number of times they experienced an unfavorable shock suggests that, in the areas concerned, credit market imperfections and subsistence constraints are still an important determinant of land sales. This is supported by our finding that ways to mitigate shocks, in particular local presence of safety nets in the form of the employment guarantee schemes and banks, if interacted with the frequency of shocks, helped counteract such negative impact. Second, although they were significantly less active than rental markets, land sales markets helped equalize factor ratios and allowed the relatively land-poor and labor abundant to improve their levels of asset ownership and welfare without making sellers worse off. Finally, once the impacts of credit market imperfections, government policies (restrictions on land sales by tribals) and life cycle events are controlled for, land sales transferred land to better cultivators, thereby contributing to net gains in productivity. Neither the factor equalization nor the contribution to improved productivity found here for land sales emerged for non-market transactions of land. More importantly, and in addition to performing much better than nonmarket alternatives, land sales markets were significantly more active where overall economic growth was higher, suggesting that as the economy develops and other obstacles and factor market imperfections are gradually dealt with, they are likely to performed an even more important role.

The paper is structured as follows. Section two discusses the conceptual framework and some empirical evidence on operation of land markets, motivates the paper by reviewing studies of the operation of land sales markets in India, and uses these to define the econometric model. Section three describes data sources and provides descriptive evidence on the incidence of land transfers through market- and non-market channels as well as characteristics of participants before and after accessing land. Section four presents results from estimation of an ordered probit model to assess the productivity- and equity- impact of land ownership transfers. Section five concludes by summarizing key findings, policy implications, and areas for future research.

# **2. Conceptual framework and empirical evidence**

In this section, we summarize the conceptual framework as well as global evidence on functioning of land sales markets and review how this links to the Indian context and the results from studies conducted in this country. We use this to discuss the estimation strategy, an ordered probit model where we distinguish productivity- and life-cycle related factors affecting latent land demand from the frictions caused by various market imperfections which may either prevent those with effective demand from exercising it or push those who would otherwise not sell land into doing so because of other constraints.

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