consumption during crisis had a significant impact on whether land sales markets helped to equalize endowments or contributed to further dis-equalization (Cain 1981). To halt these tendencies, virtually all states implemented, during the 1960s and 1970s, different types of land reform measures, mainly in the form of land ceilings and security against eviction as well as rent ceilings for tenants.<sup>3</sup> In addition to these, legislation in virtually all states prohibits land transfers from tribals to non-tribals. Transaction cost are further increased by stamp duty which has to be paid upon registration of a sale and which in most cases amounts to more than 10% of land value (Alm _et al._ 2004).

Literature on functioning and impact of land markets in India falls into two broad categories. A first strand uses national surveys to describe changes in the land ownership distribution. Evidence, though not always clear-cut points towards increased fragmentation due to population growth, a significant reduction in the number of large landholdings, and a slight decrease in the share of landless households especially during the 1960s that is often attributed to land reform implementation (Sharma 1994). As the policy implications from this are limited, a second line uses micro-data from small and localized samples, often following both parties to a transaction and exploring contractual details and reasons to transfer the land, to describe land market functioning. These studies highlight that land sales markets are much thinner than those for rental and, in addition, allow identification of a number of regularities.

They suggest that land and labor endowments are of great relevance in affecting land market outcomes and that markets have often transferred land from very large and very small owners towards the middle (Agarwal 1994). Better access to technology tends is found to improve farmers’ ability to acquire land through sales markets (Grewal and Rangi 1981) and there is strong evidence that higher levels of non-agricultural development and the associated access to non-agricultural income improve the extent to which land sales market outcomes conform to those predicted by economic theory by improving the extent to which other factor markets function (Vijay 2002). These encouraging findings are countered by widespread evidence that, because land is not only an economic asset but also valued for a variety of noneconomic reasons that include social status and power within the village (Neale 1985) and because credit markets are often highly imperfect, distress sales are quite frequent in rural India (Sarap 1998, Rawal 2001) as emergencies situations such as drought or sickness force households to liquidate their assets.

# **2.3 Estimation strategy**

We use the above as a motivation to explore three issues, namely (i) whether land sales promote efficiency of land use by transferring it to households with higher levels of ability; (ii) the extent to which

> 3 Ceilings on the amount of land that could be held by an individual or household although implementation effort varied widely and generally was much delayed until the early 1970s. Contrary to Korea, where land owners’ anticipation of such ceilings led to a tremendous increase in land sales market transactions that transferred income to former tenants and increased productivity (Jeon and Kim 2000), they were largely evaded by spurious subdivisions (Kaushik 2005). Where, as in West Bengal, implementation of land reform legislation was effective, ceilings are still credited with having led to greater land sales market activity (Bardhan and Mookherjee 2006).

6