metadata: authors: 0: author: M. Picard,Pierre
1: author: Selod,Harris
count: Africa
docna: 0: docna: Customary Land Conversion and the Formation
            of the African City
docty: Policy Research Working Paper
subtopic: Agricultural Economics,Regulatory Regimes,Judicial System Reform,Legal Reform,Legislation,Social Policy,Common Property Resource Development,Legal Products,Energy Policies & Economics,Hydrology,Urban Housing and Land Settlements,Urban Governance and Management,Municipal Management and Reform,Urban Housing
teratopic: Agriculture,Governance,Social Development,Rural Development,Law and Development,Energy,Water Resources,Communities and Human Settlements,Public Sector Development,Urban Development
abstracts: cdata!: As cities grow and spatially expand,
            agricultural land is converted into residential land. In
            many developing countries, especially in Sub-Saharan Africa,
            this process is accompanied by a change in land tenure,
            whereby plots held under traditional customary arrangements
            are sold to new urban residents, possibly with formal
            property rights. This paper studies joint land-use and
            land-tenure conversion in an urban economics model in which
            intermediaries purchase agricultural land from customary
            owners and attempt to transform it into residential plots
            with statutory property rights. The spatial equilibrium
            includes a mix of land uses and rights where statutory and
            non-statutory residential plots coexist with customary land
            that is mainly used for agriculture. Because customary
            ownership is subject to uncertainty (because of tenure
            insecurity), the conversion process includes a potential
            information asymmetry between customary owners and
            intermediaries. The analysis shows that a market failure may
            emerge whereby some customary owners prefer to continue
            farming their land rather than participate in the urban
            residential land market, which results in a city that is too
            small. Empirical analysis using Malian data validates the
            key features of the model captured by land price gradients,
            as well as the ranking and the variance of land prices, and
            is suggestive of the presence of information asymmetry.
repnme: repnme: Customary Land Conversion and the Formation
            of the African City
display_title: Customary Land Conversion and the
            Formation of the African City
listing_relative_url: /research/2020/03/31889579/customary-land-conversion-formation-african-city
topicv3: Water m1326522 137,Personal Property Rights m1326571 1907,Land Tenure m1326631 888,Power and Electricity Sector m1327094 515,Land and Housing m1327648 817
publishtoextweb_dt: 2020-03-23T00:00:00Z
historic_topic: Agriculture,Governance,Social Development,Rural Development,Law and Development,Energy,Water Resources,Communities and Human Settlements,Public Sector Development,Urban Development
origu: DEC-Sustainability & Infrastruct (DECSI)
no_of_pages: 37
author_keys: 0: author_key: 750638
model_extractions: Policy Research Working Paper 9192 Customary Land Conversion and the Formation of the African City _Pierre M. Picard Harris Selod_ Development Economics Development Research Group March 2020
Policy Research Working Paper 9192

# **Abstract**

As cities grow and spatially expand, agricultural land is converted into residential land. In many developing countries, especially in Sub-Saharan Africa, this process is accompanied by a change in land tenure, whereby plots held under traditional customary arrangements are sold to new urban residents, possibly with formal property rights. This paper studies joint land-use and land-tenure conversion in an urban economics model in which intermediaries purchase agricultural land from customary owners and attempt to transform it into residential plots with statutory property rights. The spatial equilibrium includes a mix of land uses and rights where statutory and non-statutory residential plots coexist with customary land that is mainly used for agriculture. Because customary ownership is subject to uncertainty (because of tenure insecurity), the conversion process includes a potential information asymmetry between customary owners and intermediaries. The analysis shows that a market failure may emerge whereby some customary owners prefer to continue farming their land rather than participate in the urban residential land market, which results in a city that is too small. Empirical analysis using Malian data validates the key features of the model captured by land price gradients, as well as the ranking and the variance of land prices, and is suggestive of the presence of information asymmetry.

This paper is a product of the Development Research Group, Development Economics. It is part of a larger effort by the World Bank to provide open access to its research and make a contribution to development policy discussions around the world. Policy Research Working Papers are also posted on the Web at http://www.worldbank.org/prwp. The authors may be contacted at pierre.picard@uni.lu and hselod@worldbank.org.

_The Policy Research Working Paper Series disseminates the findings of work in progress to encourage the exchange of ideas about development issues. An objective of the series is to get the findings out quickly, even if the presentations are less than fully polished. The papers carry the names of the authors and should be cited accordingly. The findings, interpretations, and conclusions expressed in this paper are entirely those of the authors. They do not necessarily represent the views of the International Bank for Reconstruction and Development/World Bank and its affiliated organizations, or those of the Executive Directors of the World Bank or the governments they represent._ Produced by the Research Support Team
Customary Land Conversion and the Formation of the African City Pierre M. Picard<sup>_∗_</sup> Harris Selod<sup>_†_</sup> Keywords: Urbanization, land markets, property rights, market failure JEL codes: O43, R14, P14

> _∗_ CREA, University of Luxembourg, 6, rue Richard Coudenhove-Kalergi L-1359 Luxembourg. Email: pierre.picard@uni.lu.

> _†_ The World Bank, 1818 H Street NW, Washington, DC 20433. Email: hselod@worldbank.org.
# 1 Introduction

Cities are growing at an unprecedented pace in countries in Sub-Saharan and Asia and the trend is expected to continue over the rst half of the twenty-rst century. In Sub-Saharan Africa alone, the urban population is projected to increase by an additional 800 million residents by 2050, an almost threefold increase in just over three decades (United Nations, 2018). With such a large urban population growth fueling demand for land, cities in Sub-Saharan Africa will also continue to expand spatially in very signicant proportions (Angel, 2012). As countries in the region are largely rural, urban expansion will continue to involve a massive process of land use conversion whereby agricultural land in peri-urban areas is transformed into urban residential land (Locke and Henley, 2016, Camara, 2017). With land plots in peri-urban areas still overwhelmingly governed by a customary system of land allocation (Durand-Lasserve et al., 2015, World Bank, 2020),<sup>1</sup> this has two major implications. First, because land for housing is developed in a decentralized fashion, peri-urban land is being purchased from customary owners by private intermediaries and sold to urban residents (Mends and De Meijer, 2006, Naab et al. 2013, Durand-Lasserve et al. 2015). As land exits the customary system, it becomes tradable individual property, a phenomenon described in the anthropological literature as a "commodication of land or the "emergence of land markets (Wehrmann, 2005). Second, the process of land-tenure individualization that accompanies urban expansion simultaneously involves a conversion of land tenure from customary rights to either formal statutory rights (i.e., the establishment and registration of titled deeds, or the granting of use rights by public authorities) or, in many other instances, to the absence of any statutory right, fueling the informal land market (Durand-Lasserve et al. 2015, Camara 2017). It is notable that the conversion of customary tenure to a statutory right is neither an instantaneous nor a riskless process. For instance, a land plot may be sold by an illegitimate owner, or multiple claimants may sell the same land plot to dierent buyers simultaneously. In fact, conicts over land purchased from customary owners are very frequent (Magigi and Drescher, 2010, Neimark et al. 2018, Tembo and Sommerville 2018, Kaiser et al. 2019). This is why buyers of peri-urban customary land who can aord to pay formalization fees may choose to convert their tenure to a statutory property right and therefore removeor signicantly reducethe risk of subsequently losing their plot (Barry and Danso, 2014). However, because of tenure insecurity and barriers to formalization, the process of landuse conversion that accompanies urban expansion is likely to occur in inecient ways. Understanding how the land use conversion process happens on the ground and what 1Customary land systems refer to traditional norms and institutions that still govern land allocation in rural and peri-urban Sub-Saharan Africa. Under these customary systems, land is allocated to users by customary authorities (such as village chiefs or land chiefs within each village) in exchange for a symbolic gift (for instance 10 cola nuts). Because no money is involved in the exchange, there are no land markets. Even though land is "owned" by the allottee and can be inherited by his children, it cannot be sold and it is only held under the social understanding that the ultimate owner of the land is the community (Paaga, 2013). In theory, land can be taken back in the future by customary authorities and reallocated to other users.

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the associated ineciencies are is a prerequisite to inform any policy that will aim to accompany population growth and urban expansion in Sub-Saharan Africa. This is the purpose of this paper.

To our knowledge, our paper is the rst to provide a joint theory of customary land sales and land tenure conversion. Using a monocentric-city urban economics framework, our theoretical model studies how tenure insecurity and information asymmetry aect the conversion of land use and tenure as the city comes into shape. In our framework, all the land is initially in the hands of customary owners who practice agriculture. Intermediaries (labeled brokers) purchase land from customary owners and attempt to formalize tenure as a means to reduce tenure insecurity before reselling plots to incoming urban workers. These brokers actually encompass a variety of stakeholders who transform land and tenure, including informal brokers (known as coxers), real estate agents, developers and private individuals.<sup>2</sup> It is assumed that only brokers but not customary owners can convert tenure. This is because customary owners, who usually are agricultural laypersons, usually do not have the capacity to navigate the administration. The tenure formalization attempts of brokers, however, are not always successful, as competing claims over land ownership may emerge and derail the process before a formal property right can be established. Furthermore, land plots are heterogeneous in the probability of land tenure formalization, an assumption which reects the variety of situations that can lead to a conict (such as disputed inheritance among family members, or local disputes regarding the allocation of the plot by village customary authorities, etc.). Although brokers cannot avoid the risk of a formalization failure, they may be able to assess it to some extent. We rst analyze the case where brokers can obtain complete information on this risk. Then, their business is simply to acquire land from a customary owner and to attempt to establish statutory rights on the plot. If successful, they have to pay a conversion fee (which may cover various expenses ranging from land surveying fees to registration in the cadaster). We then contrast this with the case where brokers are unable to obtain information on the risk of a formalization failure. This is typically caused by the inherent diculty of inspecting and uncovering all dierent stakes in the ownership of a land plot. We show that brokers then face an additional problem of adverse selection as customary owners may choose to oer the riskiest plots for sale. The information asymmetry causes a land market failure, as transactions fail to take place at some specic distance from the city center.

The paper also provides a framework for an empirical analysis of land tenure conversions in Sub-Saharan African cities. It exploits a unique survey of land plots in Bamako, Mali, that were transacted between 2009 and 2012 and unbuilt at the time of 2In Mali, coxers are land brokers who facilitate transactions between customary owners and buyers. According to Durand-Lasserve et al. (2015), they maintain a network of informers in peri-urban villages to identify land that can be transacted. They negotiate with village authorities on behalf of buyers and are therefore key players in the conversion of customary agricultural land into residential land. They know how to circumvent regular procedures and deal with the administration to make sales and land tenure conversion eective. They can be found alongside roads, near plots for sale.

3
the transaction (Durand-Lasserve et al. 2015). The empirical analysis provides several pieces of evidence corroborating the main predictions of the theoretical model with informed brokers. In particular, it is shown that formalization from non-statutory to statutory rights decays with distance from city center. Furthermore, as predicted by the model, the land price gradient (i.e., the price change with respect to distance from the city center) is smaller for non-statutory land plots that were upgraded to statutory rights after their purchase than for the plots that were already held under statutory rights when purchased. It is also shown that the variance in the price of non-statutory land plots is higher than that of statutory land plots, reecting that there are greater variations in risk for the former than for the latter. Finally, although the analysis is suggestive of the presence of information asymmetry, it does not provide a strong support towards price patterns that would be consistent with a strong adverse selection issue generated by the brokers' lack of information about the risk of non-statutory land tenure.

Our approach builds on the mainstream literature on land property rights and the emerging urban economics literature that studies the land market and land use implications of tenure insecurity. The eects of land tenure informality have been identied early on in the literature (see in particular Besley, 1995, on reduced investment in land, Field, 2007, on reduced labor market participation, or Galiani and Schargrodsky, 2010, and Galiani et al., 2017, on exposure to crime and negative health and human capital externalities from living in slum areas). By contrast, the causes of land tenure informality and mechanisms leading to it have been much less studied. To our knowledge, Jimenez (1985) provides the seminal theoretical model about land tenure informality where squatters use land invasions as a coordinated action that protects them from the threat of eviction. The idea of an endogenous determination of a city's informal zone was extended to a general equilibrium setting by Brueckner and Selod (2009) who showed how squatting squeezes the formal sector and consequently raises formal prices in contexts of an inelastic urban land supply.<sup>3</sup> Our paper nevertheless does not address the issue of the violation of existing property right as highlighted in squatting models. Instead, we study the transformation of a type of informal right to other types of informal and formal rights. A handful of models have recently embedded tenure transformation and insecurity in urban economics frameworks. In particular, Selod and Tobin (2018) model informal land markets where land is purchased without wellestablished property rights and agents choose what property right to purchase from the land administration among a menu of tenure situations that provide various degrees of tenure security. They show that property rights are more formal and more secure at the proximity of the city center, a prediction similar to ours. Cai et al. (2018) simplify Selod and Tobin's (2018) spatial approach but embed it in a dynamic stochastic model with internal migration. After calibrating their model, they simulate the long-term trajectory of formal and informal land uses in a city and study the persistence of in-

> 3Extensions of that model include Brueckner (2013) who introduces a rent-seeking organizer, and Shah (2014) who focuses on squatting on public land as opposed to private land.

4
formal urban land use in developing country contexts. Brueckner et al. (2019) further delve into the specicities of informal land markets by focusing on the rental market for backyard structures, an important phenomenon that has emerged in various countries. They derive the conditions for this submarket to emerge and predict the location patterns of backyarding within cities. Pfeier et al. (2019) extend the latter framework to a dynamic land-use model with formal and informal housing, simulate and calibrate it for the city of Cape Town, South Africa. Other recent contributions have also studied the coexistence of formal and informal housing in cities focusing on the role played by various determinants of slum formation including internal migration to cities and the elasticity of formal housing supply (Alves, 2017, Henderson et al., 2018, Cavalcanti et al., 2019).

As in this recent literature, our paper studies the coexistence of formal and informal land uses within the same urban economy. Our paper, however, innovates in two important ways: First, it explicitly models customary land rights as part of the urban land system. Customary land use is omnipresent in West African cities and coexists alongside formal and informal land uses, a situation known as legal pluralism. This is absent from the previous theoretical urban economics literature. Second, the paper provides an analysis of information asymmetry between buyers and sellers, an important feature that is missing from previous models. Indeed, because land customary rights are not recognized by any ocial documentation, they are characterized by imprecision and local interpretation, which gives customary sellers strong private information about the transferability of their land plots' ownership. To our knowledge, the only other paper studying information asymmetry is that of Lanjouw and Levy (2002) in a non-spatial framework. Their model makes it possible to study dierences in the transferability of claims regarding transactions of formal and informal housing, and to analyze how transferability aects land price dierentials. In our framework, although information asymmetry also inuences transaction prices, it plays a very dierent role by potentially aecting land market participation.

Section 2 presents the general architecture of the model and sections 3 and 4 develop two versions of the model depending on whether brokers are informed or not of the levels of tenure insecurity of the customary plots they purchase. Section 5 describes the model predictions. Secion 6 contains the empirical analysis inspired by the model. The last section concludes.

# 2 Model

We consider an open city with a central business district (CBD) at _x_ = 0 and perfectly mobile and risk neutral individuals. Individuals who live in the city may reside at various locations _x_ from the CBD and are endowed with identical preferences over consumption of residential land and a homogeneous good. For simplicity, we assume a 5
unit demand for residential land, so that utility is simply given by the consumption of the homogeneous good _z_ . The price of the homogeneous good is normalized to one.

Individuals can be categorized into four possible cases of economic activities and land right holdings. In the rst category, individuals reside and work outside the city, hold no customary land right in the city and obtain the outside utility, _u_ . In the second category, individuals are customary farmers who reside within the city extent, farm a piece of land there and sell their farming goods at the CBD. In conformity with reality, customary farmers are endowed with a customary land right, which allows them not to pay any land rent. Their land plots include a unit of residential land and _s_ additional units for their farming activities. Farms produce farming goods at productivity _α_ per unit of land, which yields a farm production equal to _αs_ . We normalize the price of farming goods to one so that the value of farming goods is also equal to _αs_ . Customary farmers incur an iceberg transport cost _τ ∈_ (0 _,_ 1) per unit of distance and farming good for carrying to and trading their production at the CBD. After exchanging their production, they can consume the homogeneous good in quantity where the RHS is their net income from selling their farming production from their location _x_ . Customary farmers exist only for _x <_ 1 _/τ_ . As customary land holders, farmers hold their land plots under a customary tenure right that provides a "customary right enforcement". The enforcement level under the customary system is given by the probability _q_ of keeping the land (given possible challenges that may emerge over land use within the customary system). This probability is known by the land holder and is idiosyncratic and distributed with cumulative distribution function _G_ on the support [ _<u>q, q</u>_ <u>]</u> , 0 _<_ _<u>q</u> <_ _<u>q</u> ≤_ 1 . With probability 1 _− q,_ the land is appropriated by another customary farmer at the same location. The evicted farmer leaves the city (or becomes an urban worker, see below). Given this uncertainty, the customary farmers' expected utility is given by _qa_ ( _x_ ) + (1 _− q_ ) _u_ , which decreases with distance _x_ to the agricultural product market located at the CBD. Customary farmers are free to leave the city and get the outside utility _u_ . They remain in the city if the expected utility is larger than _u_ , or equivalently if _a_ ( _x_ ) _≥ u_ . Hence, the last customary farmer (which is indierent between living in the city and the rural area) lives at distance _xa_ from the CBD, with and where _a_ ( _xa_ ) = _u_ .

The two other categories of individuals include "urban workers" who reside in the city and work at the CBD. Urban workers have identical work productivity and therefore identical wages _w_ while they incur the same commuting cost _t_ per unit of distance. We dierentiate between urban workers according to the statutory or non-statutory tenure of their land plots.

6
Urban workers with statutory land tenure reside on certied land plots with fullysecure statutory rights so that they do not face any risk of eviction. If located in _x_ , they pay the land price _pS_ ( _x_ ) for their unit residential plot. Their budget constraint is given by _w_ = _z_ + _tx_ + _pS_ ( _x_ ) so that they obtain a consumption level _z_ = _w − tx − pS_ ( _x_ ) . Urban workers are perfectly mobile and free to migrate in and out of the city. The free mobility condition _u_ = _z_ gives the statutory residential land price By contrast, urban workers holding no statutory right live on land plots with insecure tenure. They pay a price _pNS_ ( _x_ ) for their unit residential land with no statutory right in location _x_ . Because their land ownership is not documented, they face the same threats of eviction that a customary farmer would face for that same plot. Let _θ_ ( _q_ ) _∈_ (0 _,_ 1) be the probability that they enforce their land right. Given that enforcement is aected by the same sources of conict, this enforcement probability rises with the level of tenure security under customary ownership, implying _θ_<sup>_′_</sup> _>_ 0 . Then, with probability _θ_ ( _q_ ) , those workers commute and work at the CBD for the wage _w_ and consume _z_ = _w − tx − pNS_ ( _x_ ) where _x_ is their residential location. With probability 1 _− θ_ ( _q_ ) , they are evicted, lose their land, leave the city and get a utility _u_ so that their net utility becomes _u − pNS_ ( _x_ ) .<sup>4</sup> The expected utility of a worker with no statutory right is thus given by _θ_ ( _q_ ) ( _w − tx − pNS_ ( _x_ )) + (1 _− θ_ ( _q_ )) ( _u − pNS_ ( _x_ )) _._ Because, workers are free to migrate before purchasing their land, at the equilibrium, this expected utility must be equal to the outside utility level _u_ . This gives the following price of non-statutory residential land for workers: Observe that the price _pNS_ is a function of both location _x_ and the probability _q_ of keeping the land. Also observe that non-statutory residential land sells at a discount equal to the worker's probability of not being evicted _θ_ ( _q_ ) . Equivalently, 1 _/θ_ ( _q_ ) reects the tenure security premium expressed as a multiplicative factor. Brokers. Land transformation from customary to statutory rights is managed by a group of perfectly competitive risk-neutral land brokers, who acquire customary land plots, attempt to establish statutory rights and resell those plots to urban workers. In our model, brokers account for the function of transforming land use and land tenure. Therefore, we assume that they cannot be evicted between their purchase and the resale of a plot but instead that they face potential conicts over land that aect their likelihood of successfully establishing statutory property rights. More formally, a land broker oers a price _p_ ( _x_ ) to acquire a unit of customary land and holds it under the tenure transformation probability _π_ ( _q_ ) _∈_ [0 _,_ 1] . This probability rises with _q_ ( _π_<sup>_′_</sup> _>_ 0 ) because conicts about land ownership carry over after land purchases. The

> 4Our framework does not require specifying what happens once the worker is evicted. The plot could be appropriated by an urban worker or resold to an urban workers at the price _pNS_ ( _x_ ) .

7
probability _π_ ( _q_ ) is also higher than the farmer's customary right enforcement probability _q_ ( _π_ ( _q_ ) _> q_ ) because the sale is generally documented and brokers use their higher social status and larger social network to prevent conicts from materializing and threatening the certication of the land. With probability _π_ ( _q_ ) , the broker's ownership of the plot is not contested, allowing her to pay the certication cost _c_ and obtain a statutory property right from the land administration. This property right is fully secure (there is no more risk of eviction) and transferable. In this case, the broker formally re-sells the land for a value _pS_ ( _x_ ) to urban workers and transfers the statutory property rights to them. With probability 1 _− π_ ( _q_ ) , however, the broker does not succeed in certifying the land plot and thus does not incur any certication cost but resells the plot as a non-statutory residential plot at a price _pNS_ ( _x, q_ ) .

Benchmark case. Before proceeding with the rest of the analysis, it is interesting to briey discuss the benchmark case of free and secure property rights. The uncertainty in land property rights can be eliminated through the setting up and enforcement of a registration system (land registry or cadaster) that extinguishes competing claims and unequivocally assigns statutory property rights on each land plot. Furthermore, if the registry is costless and free to access, we can impose _q_ = _π_ ( _q_ ) = _θ_ ( _q_ ) = 1 and _c_ = 0 . This implies that all land plots have statutory rights and brokers are not needed. A farmer gets a utility _a_ ( _x_ ) from her farm production and _pS_ ( _x_ ) + _u_ from selling the land and leaving the city (or becoming an urban worker). A land transaction between a farmer and an urban worker takes place if and only if To t reality, we assume that urban residences lie close to the CBD, which requires that the LHS falls more rapidly than the RHS. That is, Under the above assumption, commuting costs should be higher than the costs of transporting farming goods to the CBD (corrected for farm size and farm productivity). The above condition then determines the following unique frontier between the urban workers' residential area and the urban farming area: In our benchmark case, the city includes urban workers' residences on the interval [0 _,_ � _x_ ] and urban farms on ( _x, x_ � _a_ ) . There is no mix of land uses and rights. Intuitively, � the residential frontier _x_ expands with higher urban wages, lower commuting cost and higher unit transportation cost of farming goods.

# 3 Informed brokers

In this section, we study the city structure when brokers are perfectly informed about customary enforcement risks. We rst determine the price that brokers pay for land 8
plots conditional on the level of customary right enforcement. Brokers get the revenue _pS_ ( _x_ ) or _pNS_ ( _x_ ) , incur the certication cost _c_ and pay the land price _p_ . Under symmetric information, brokers know the customary enforcement level _q_ of a given plot and have expected prot Because of land brokers' competition, customary land owners with enforcement right _q_ are able to sell their land at a price _p_<sup>_o_</sup> that makes brokers indierent between making and not making a transaction (given by the zero-prot condition _V_ ( _x, p_<sup>_o_</sup> _, q_ ) = 0 ). That is, where is the broker's compounded probability of land tenure transformation and non-eviction. This is also the ex-ante probability that a future buyer will not be evicted (accounting for the likelihood of tenure transformation by the broker).<sup>5</sup> This probability rises with _q_ (since Π<sup>_′_</sup> = (1 _− θ_ ) _π_<sup>_′_</sup> + _θ_<sup>_′_</sup> (1 _− π_ ) _>_ 0 ).

We then focus on customary farmers' decision to transact under _p_<sup>_o_</sup> ( _x, q_ ) . On the one hand, customary land holders get a utility _p_<sup>_o_</sup> ( _x, q_ ) + _u_ when they sell their land and leave the city (or become urban workers). On the other hand, customary farmers get the utility _qa_ ( _x_ ) + (1 _− q_ ) _u_ ( _≥ u_ ) when they farm their customary land with tenure insecurity. This means that they must at least obtain the utility level _u_ + _q_ [ _a_ ( _x_ ) _− u_ ] to transact. The transaction takes place if and only if For the sake of realism, we consider that urban workers live closer to the CBD, or equivalently, that customary land sales take place closer to the CBD. Toward this aim, we assume that, for any _q_ , the LHS of condition (4) falls more rapidly with _x_ than its RHS, which is equivalent to imposing that This requires that commuting costs are high enough compared to the cost of moving � farming goods to the city marketplace. Then, there exists a unique location _x_ ( _q_ ) such that brokers and customary farmers with enforcement level _q_ make a transaction for all � locations _x ≤ x_ ( _q_ ) and none otherwise. We compute

> 5 Indeed, _π_ ( _q_ ) is the probability that the the broker manages to certify the plot (and sells it under a non-evictable statutory right), while _θ_ ( _q_ ) (1 _− π_ ( _q_ )) is the probability that the plot could not be certied by the broker and that the buyer of the plotwho holds a non-statutory rightis not evicted.

9
This is a continuous function of _q_ that accepts minimum and maximum values <u>(</u> _<u>x, x</u>_ <u>)</u> . Then, all the land remains under customary rights and is used for farming at _x ≥_ _<u>x</u>_ ~~.~~ For _x ≤_ _<u>x,</u>_ all the land is purchased by brokers: the fraction _π_ ( _q_ ) of land with enforcement _q_ gets certied and sold as worker residences with statutory rights, and the fraction 1 _− π_ ( _q_ ) is sold as residences with non-statutory rights. On the interval <u>(</u> _<u>x, x</u>_ ] , three types of land use and tenure exist: customary farm land and worker residences with and without statutory rights.

This is shown in the top panel of Figure 1. To understand the gure, x the probability of keeping the land to a specic value _q_ . Then, the dashed ray _aa_<sup>_′′_</sup> represents the reservation values of customary farmers with probability _q_ while the dashed line _bb_<sup>_′′_</sup> corresponds to the reservation values of brokers with tenure transformation probability _π_ ( _q_ ) . The two lines intersect at _a_<sup>_′_</sup> = _b_<sup>_′_</sup> . Because of perfect competition, brokers' transaction prices lie on the line segment _bb_<sup>_′_</sup> when customary farmers sell their land. There is no transaction on the segment _b_<sup>_′_</sup> _b_<sup>_′′_</sup> because customary farmers prefer holding on to their land. The same argument applies for land with higher risk security levels _q_ , in which cases the ray _aa_<sup>_′′_</sup> and line _bb_<sup>_′′_</sup> move up. The upper and lower continuous lines represent the loci of _aa_<sup>_′′_</sup> and _bb_<sup>_′′_</sup> for _q_ = _<u>q</u>_ and _q_ = _<u>q</u>_ . Then, the gray zone represents the prices and locations where brokers acquire customary land. The bottom panel of Figure 1 depicts the shares of land use and tenure. For _x <_ _<u>x</u>_ ~~,~~ transactions lead to a mix of statutory and non-statutory rights in proportion with brokers' probability _π_ ( _q_ ) to establish statutory rights.

10
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goods _τ_ also diminish the customary farmers' earnings and raise their incentives to sell their land to brokers. Similarly one can show that d _x/_ � d( _αs_ ) _<_ 0 so that a smaller farm production raises the customary farmers' incentives to sell their land, which pushes outwards the boundary of the residential area with statutory rights.<sup>6</sup> Tenure insecurity and city structure. Comparing our results from this section with those of the benchmark model presented at the end of the previous section, we can now briey compare land market allocations with and without tenure insecurity. One can show that _x_ �( _q_ ) _< x_ � if and only if where _xS_ is the location where the price _pS_ ( _x_ ) is equal to 0 (see _xS < xa_ in Figure 1). By virtue of (1), the ratio in the LHS of this condition is positive. In conformity with reality, let us consider that the compounded probability Π( _q_ ) is larger than the customary farmer's enforcement probability _q_ so that both sides of the condition are positive. Then, if the certication cost is high enough, the condition holds true so that the tenure risk reduces the city extent at any enforcement probability _q_ . This is because too a high certication cost reduces the brokers' incentives to transform the land. The opposite may however occur. For instance, the above condition does not hold if the certication cost tends to zero. In this case, by formalizing land plots, brokers increase the land value so much that customary farmers prefer to sell their insecure land plots, even though they would have held on to the same plots under fully-secured rights in the benchmark model. Hence, the city's geographical extent may paradoxically be larger with tenure insecurity than without it.

Other comparative statics. Comparative statics are dicult to obtain for other parameters. In general, the impact of the enforcement probability _q_ on _x_ � is neither linear nor monotone. To illustrate this impact, we explore the following example where _π_ ( _q_ ) = _π_ 0 _q_ , _θ_ ( _q_ ) = _θ_ 0 _q_ , _q ∈_ [0 _,_ _<u>q</u>_ <u>]</u> , _π_ 0 _<_ 1 _<u>/q</u>_ ~~,~~ _θ_ 0 _∈_ [1 _, π_ 0] . The parameter _π_ 0 measures the ease of tenure transformation, i.e. the capacity of brokers to avoid potential conicts and successfully navigate the formalization procedure. The higher this parameter is, the better the brokers are able to ensure the land-tenure transformation from customary to statutory rights. The parameter _θ_ 0 measures the price discount brokers must accept when they resell non-statutory land to residents (as compared to land with a statutory right). Calculations lead to

> 6Indeed, one can show that d _x/_ � d( _αs_ ) = _τq_ [ _x_ �( _q_ ) _−_ 1 _/τ_ ] _/_ [ _t_ Π( _q_ ) _− ταsq_ ] , which is positive by (5), _x_ �( _q_ ) _<_ _<u>x</u>_ and _<u>x < xa</u> <_ 1 _/τ._

12
which is a monotone function of _q_ . It increases in _q_ if and only if That is, for low enough ease of tenure transformation parameter _π_ 0 , when the schedule of customary land sales _x_ �( _q_ ) is monotonically increasing (as in the top panel of gure 1), brokers prefer to buy the more secure land plots; in other words, the plots with higher customary security _q_ are transacted more and up to a larger geographical extent. To see this, note that the location _<u>x</u>_ has transactions with the highest customary security level _<u>q</u>_ and therefore the highest probability of transformation _π_ <u>(</u> _<u>q</u>_ <u>)</u> . Conversely, the inner location _<u>x</u>_ has transactions with the least secure land _<u>q</u>_ and the lowest probability of transformation _π_ <u>(</u> _<u>q</u>_ ) . According to Condition (7), brokers prefer to buy more secure land plots for a low enough ease of tenure transformation parameter _π_ 0 . Interestingly, the opposite argument obtains for a high enough ease of tenure � transformation parameter _π_ 0 and therefore for decreasing schedules _x_ ( _q_ ) . In this case, brokers attract customary owners with the lower tenure security _q_ and transform their plots to statutory residential plots with a high probability of success. These contrasting results reect the trade-o for the brokers between buying cheaper insecure plots and the diculty at which they can formalize those plots. In what follows, we do not make � any assumption regarding whether _x_ is an increasing or decreasing function of _q_ .

We now study the city structure when brokers are not informed about the customary enforcement levels of land plots.

# 4 Uninformed brokers

In this section we study land market allocations when brokers are unable to observe land tenure insecurity in their transactions with customary land holders. Typically, brokers are not informed about the seller's customary right enforcement _q_ and, therefore, do not know their own enforcement probability _π_ ( _q_ ) at the time they commit to purchasing a unit of customary land at price _p_ . This gives rise to an adverse selection problem where brokers are oered the land with the weakest tenure security.

On the supply side of the land market, a customary land holder chooses her best option between (1) farming her insecure land, which yields a utility level _qa_ ( _x_ )+(1 _−q_ ) _u_ , and (2) selling her land and leaving the city (or becoming an urban worker), which yields a utility level _p_ + _u_ . The customary enforcement levels of land plots oered for sale at _x_ are therefore given by the set which expands with the oered price _p_ . Land supply depends negatively on the return on farming net of transport costs _a_ ( _x_ ) , which increases with proximity to the city center. Because _a_ ( _x_ ) _> u_ on the whole urban area, land supply also depends negatively 13
on customary farmers' tenure enforcement probability _q_ . Only customary farmers with suciently low _q_ want to oer their land plots for sale. As those plots also have lower likelihood of tenure transformation, this creates an adverse selection issue between sellers and brokers. In this paper, the seller's value stems from the sales of her farming production in the city center _a_ ( _x_ ) . The idea would readily extend to any other value created by city center proximity for customary owners such as access to shopping, public administration, informal work, etc.

On the demand side of the market, brokers pay the land price with certainty but obtain a revenue _pS_ ( _x_ ) _− c_ with probability _π_ ( _q_ ) when they are able certify the land rights and _pNS_ ( _x_ ) otherwise. Given the set of customary enforcement levels _Q_ , they make the expected prot if they buy the land plot from a customary farmer in location _x_ . We can re-write this as where we substituted for the compounded probability Π( _q_ ) that we dened in the previous section. The expected prot therefore balances the expected values of urban workers' residential land price, their compounded probability of not being evicted and the broker's certication cost as well as the price paid for the land. A further substitution yields so that the expected prot is the dierence between the expected value of the informed broker's bid _p_<sup>_o_</sup> ( _x, q_ ) and the price paid under asymmetric information _p_ .

In the market for customary land, there are two sets of endogenous variables at location _x_ : the land price _p_ ( _x_ ) and the support of security levels of plots oered for sale, _Q_ ( _x, p_ ( _x_ )) . A competitive land equilibrium at location _x_ is then dened as the customary land price _p_<sup>_∗_</sup> ( _x_ ) and the set of security levels _Q_<sup>_∗_</sup> ( _x_ ) such that the supply of land is given by _Q_<sup>_∗_</sup> ( _x_ ) = _Q_ ( _x, p_<sup>_∗_</sup> ( _x_ )) and brokers freely enter the market and make no excess prot, implying _V_ ( _x, p_<sup>_∗_</sup> ( _x_ ) _, Q_<sup>_∗_</sup> ( _x_ )) = 0 . As before, for the sake of comparison and exposition, we consider the economic parameters that satisfy 0 _< x <_ _<u>x < xa</u>_ . We also focus on the land within the city extent [0 _, xa_ ] because the customary land beyond _xa_ is of no interest for brokers if _xa >_ _<u>x</u>_ ~~.~~<sup>7</sup> For the sake of conciseness, we dispense with reference to _x_ on the variables _a_ ( _x_ ) , _v_ ( _x_ ) , _p_ ( _x_ ) , _Q_<sup>_∗_</sup> ( _x_ ) and _V_ ( _x, ·, ·_ ) in the next two

> 7 Indeed, for any _x > xa_ , farming yields a utility lower than the outside utility: _a_ ( _x_ ) _− u <_ 0 . For any _x >_ _<u>x</u>_ ~~,~~ condition (4) fails so that _p_<sup>_o_</sup> ( _x, q_ ) _≤ q_ [ _a_ ( _x_ ) _− u_ ] for all _q ∈_ [ _q,_ _<u>q</u>_ <u>]</u> . Hence, for _x > xa >_ _<u>x</u>_ ~~,~~ _p_<sup>_o_</sup> ( _x, q_ ) _<_ 0 and _V_ ( _x, p, Q_ ) _<_ 0 for any set _Q_ .

14
paragraphs.

Customary land holders are willing to sell their unit of land plot if the oered price _p_ lies above their reservation utility _q_ ( _a − u_ ) . The set of customary enforcement levels is therefore given by _Q_<sup>_∗_</sup> ( _p_ ) = [ _<u>q, p/</u>_ ( _a − u_ )] if _p/_ ( _a − u_ ) _<_ _<u>q</u>_ and <u>[</u> _<u>q, q</u>_ <u>]</u> otherwise. Here, it is convenient to denote _<u>p</u>_ = _<u>q</u>_ ( _a − u_ ) _>_ 0 and _<u>p</u>_ = _<u>q</u>_ ( _a − u_ ) _>_ 0 ( 0 _< p <_ _<u>p</u>_ ~~)~~ the land prices enticing supply by none or by all customary landowners. The broker's expected prot can then be written as The equilibrium is found where brokers make zero expected prot, that is _V_<sup>�</sup> ( _p_ ) = 0 . It is easy to see that the function _V_<sup>�</sup> ( _p_ ) is equal to zero at _p_ = 0 and is negative and decreasing for _p ∈_ (0 _, p_ <u>]</u> . It is also decreasing for _p >_ min _{p,_ _<u>p</u>_ _~~}~~ /_ ( _a − u_ ) . In this paper we simplify the discussion of equilibria by assuming that _V_<sup>�</sup> ( _p_ ) crosses the zero axis at most once from below for _p ∈_ [ _p_ _<u>p</u>_ <u>]</u> . A sucient condition is that This is equivalent to saying that _p_<sup>_o_</sup> ( _x, q_ ) _g_ ( _q_ ) is increasing in _q._ For instance, when _θ_ ( _q_ ) is small enough, one just needs to have _π_ ( _q_ ) _g_ ( _q_ ) a monotone increasing function of _q_ . Under this assumption, the expected prot linearly falls from and below zero on [0 _, p_ <u>]</u> , increases on <u>(</u> _<u>p, p</u>_ <u>]</u> _,_ reaches a maximum at _p_ = _<u>p</u>_ and, again, linearly falls on <u>(</u> _<u>p, ∞</u>_ ) . This is shown in Figure 2. A rst solution for _V_ ( _p_ ) = 0 is the trivial equilibrium solution _p_ = 0 for which no customary landowner supplies land and the land market is inactive (i.e. _Q_<sup>_∗_</sup> (0) = _∅_ ). This is the unique solution if _V_<sup>�</sup> <u>(</u> _<u>p</u>_ <u>)</u> _<_ 0 . Otherwise if _V_<sup>�</sup> <u>(</u> _<u>p</u>_ <u>)</u> _>_ 0 , the function _V_<sup>�</sup> ( _p_ ) has three roots _p ∈{_ 0 _, p_<sup>_∗∗_</sup> _, p_<sup>_∗_</sup> _}_ ( 0 _< p_<sup>_∗∗_</sup> _<_ _<u>p < p</u>_<sup>_∗_</sup> ) and is positive on the interval [ _p_<sup>_∗∗_</sup> _, p_<sup>_∗_</sup> ] . However, only the highest price _p_<sup>_∗_</sup> is robust to overbidding by brokers. Indeed, if all brokers set a price _p < p_<sup>_∗_</sup> _− ε_ with small enough _ε >_ 0 , some brokers can reap the land market by setting the price _p_<sup>_∗_</sup> _− ε_ and make a positive prot _V_<sup>�</sup> ( _p_<sup>_∗_</sup> _− ε_ ) . Hence, under asymmetric information, the land market yields the equilibrium price _p_<sup>_∗_</sup> for all transactions with all types of landowners. To complete the argument, we now reintroduce the reference to the CBD distance _x_ .

15
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market is active for the set of locations _X_<sup>_∗_</sup> _≡{x_ : _V_<sup>�</sup> ( _x,_ _<u>p</u>_ <u>(</u> _x_ )) _≥_ 0 _}._ It can be checked that, if _pS_ ( _x_ ) (1 _− θ_ ( _q_ )) _> c_ for all _q_ , an upper shift in the broker's tenure transformation probability _π_ ( _q_ ) raises the expected prot _V_<sup>�</sup> ( _x,_ _<u>p</u>_ <u>(</u> _x_ )) and therefore enlarges the set _X_<sup>_∗_</sup> . Under the opposite condition, the same conclusion may hold or not depending on the balance of land for which the condition holds and does not hold.

To understand the eect of adverse selection, we must compare the sets of locations _X_<sup>_∗_</sup> and [0 _,_ _<u>x</u>_ <u>]</u> where the land market is active under asymmetric and under full information. On the one hand, it is easy to show that, under asymmetric information, there is no land transaction beyond _<u>x</u>_ ~~:~~ [ _<u>x, xa</u>_ ] _∩ X_<sup>_∗_</sup> = _∅_ . Indeed, under complete information there is no transaction at _x ∈_ [ _<u>x, xa</u>_ ] where, by virtue of (4), for all _q_ . The above proposition states that the market is inactive under incomplete information if This can however be written as _<u>q</u>_ The second term in the above expression is strictly negative since _<u>q</u> >_ ́ _<u>q</u> q_ d _G_ ( _q_ ) . The rst term is negative for any _x ∈_ [ _<u>x, xa</u>_ ] since its integrand is negative by virtue of (10). Hence, _V_<sup>�</sup> ( _x,_ _<u>p</u>_ <u>(</u> _x_ )) _<_ 0 for any _x ∈_ [ _<u>x, xa</u>_ ] . On the other hand, by a continuity argument, the same conclusion applies for locations closer to the CBD. Indeed, one may take _x_ = _<u>x</u> − ε_ , for all (small enough) _ε_ so that the absolute value of the rst term is smaller than that of the second term. So, [ _<u>x</u> − ε, xa_ ] _∩ X_<sup>_∗_</sup> = _∅_ . Land transformation does not take place at locations <u>[</u> _<u>x</u> − ε,_ _<u>x</u>_ <u>]</u> under asymmetric information although it occurs there under symmetric information. We summarize this result in the following proposition: Proposition 3: Asymmetric information reduces the geographical extent of urban land transformation into residential areas.

Although asymmetric information reduces residential geographical extent (with statutory and non-statutory rights), it is not clear whether it diminishes the total residential surface and therefore the number of urban workers. Indeed, in this model, all land plots get transformed under asymmetric information in _X_<sup>_∗_</sup> whereas only part of this land is transformed under symmetric information in <u>[</u> _<u>x, x</u>_ <u>]</u> .

17
To x ideas regarding those sets, we focus below on a slightly more restrictive setting than the one in the previous section.

Example. Suppose that the brokers' enforcement probability _π_ ( _q_ ) is linear in the customary right enforcement probability _q_ and that the residential plots without statutory rights are fully insecure (i.e., they will certainly lead to eviction). More specically, let us consider _π_ ( _q_ ) = _π_ 0 _q_ , _θ_ ( _q_ ) = _θ_ 0 _q_ = 0 , _q ∈_ [0 _,_ _<u>q</u>_ <u>]</u> and _<u>q</u> <_ 1 _/π_ 0 . Non-statutory residential land plots are then exchanged at a zero price _pNS_ ( _x_ ) = 0 . Under full information, we have the price _p_<sup>_o_</sup> ( _x, q_ ) = [ _pS_ ( _x_ ) _− c_ ] _π_ 0 _q_ and condition (4) becomes which is independent of _q_ . Assuming that the LHS falls more rapidly than the RHS, the � binding condition (11) yields a constant threshold location _x_ that divides the city in two � districts: statutory and non-statutory residential for _x ≤ x_ and customary agricultural otherwise. Under asymmetric information, the broker's expected value of a residential project simplies to _<u>q</u>_ where E( _q_ ) = ́ _<u>q</u> q_ d _G_ ( _q_ ) , and her maximal expected prot is given by _V_<sup>�</sup> ( _x,_ _<u>p</u>_ <u>(</u> _x_ )) = _p_<sup>_∗_</sup> ( _x_ ) _−_ _<u>q</u>_ [ _a_ ( _x_ ) _− u_ ] _._ Hence, brokers enter the market if and only if Because E( _q_ ) _<_ _<u>q</u>_ ~~,~~ the LHS of (12) is smaller than that of (11), so that the solution � _x_<sup>_∗_</sup> of the binding condition (12) is smaller than _x_ . As a result, the city divides in the same districts as under symmetric information: statutory and non-statutory residential for _x ≤ x_<sup>_∗_</sup> and customary agricultural otherwise. However, the residential district is smaller due to adverse selection. Brokers' information asymmetry leads to a land market failure that takes place at locations _x ∈_ ( _x_<sup>_∗_</sup> _,_ _<u>x</u>_ <u>)</u> . Here, asymmetric information reduces both the residential geographical extent and surface and therefore the number of urban workers, since land in ( _x_<sup>_∗_</sup> _,_ _<u>x</u>_ <u>)</u> is not used for residences.

Corollary: When the brokers' tenure transformation probability _π_ ( _q_ ) is linear and residential plots without statutory rights are fully insecure, a land market failure exists at the edge of the urban workers' residential area for _x ∈_ ( _x_<sup>_∗_</sup> _,_ _<u>x</u>_ <u>)</u> . The city includes fewer workers because of asymmetric information.

# 5 Model predictions

The model leads to four possible empirical predictions on the price schedules of sales to urban workers and brokers.

18
First, urban workers buy residential properties with statutory rights at price _pS_ ( _x_ ) while, by virtue of condition (2), informed brokers purchase customary land at price _p_<sup>_o_</sup> ( _x, q_ ) = _pS_ ( _x_ )Π( _q_ ) _−cπ_ ( _q_ ) , where Π( _q_ ) is the broker's compounded probability of land tenure transformation and non-eviction (see equation (3)). The expected price condi� tional on distance from the city center is given by E [ _p_<sup>_o_</sup> ( _x, q_ )] = E [ _pS_ ( _x_ )Π( _q_ ) _− cπ_ ( _q_ ) _| x < x_ ( _q_ )] , where E is the expectation operator over the distribution of enforcement levels _q_ . Hence, the observed ratio of the land price gradients satises

Since Π( _q_ ) _≤_ 1 , a rst prediction is that this ratio of land price gradients will be lower than one. If one considers only locations _x <_ _<u>x</u>_ <u>,</u> this ratio simplies to E [Π( _q_ )] . In other words, the land price gradient should be steeper for plots resold to urban workers with a statutory right than for plots purchased from customary owners by brokers.

Second, in the model of informed brokers, the price for statutory land _pS_ ( _x_ ) has zero variance whereas _p_<sup>_o_</sup> ( _x, q_ ) has a positive variance In land price data, prices will however be subject to measurement errors and unobserved characteristics that do not relate to the transformation and eviction risks modeled in this paper. As a result, land prices with statutory rights shall be observed with positive variance var [ _pS_ ( _x_ )] _>_ 0 _._ The second model prediction is that the average of var [ _p_<sup>_o_</sup> ( _x, q_ )] is larger than the average of var [ _pS_ ( _x_ )] , reecting the higher risks of customary land sales and the stronger security of the plots transacted with a statutory right.

We now turn to the question of brokers' information asymmetry. Our model provides two tests to detect the presence of asymmetric information and market failure.<sup>8</sup> First, informed brokers set dierent prices _p_<sup>_o_</sup> ( _x, q_ ) at a same distance from the city center whereas uninformed brokers can only propose a single price _p_<sup>_∗_</sup> ( _x_ ) that reects the expected value of eviction risks. Hence, whereas the informed broker model predicts a positive price variance var [ _p_<sup>_o_</sup> ( _x, q_ )] _>_ 0 , controlling for observed location and other characteristics, the uninformed broker model predicts a zero variance: var [ _p_<sup>_∗_</sup> ( _x_ )] = 0 . Remember that in the model, statutory land plots bear no risk and thus have zero price variance: var [ _pS_ ( _x_ )] = 0 . Considering measurement errors and unobserved characteristics other than the transformation risks and tenure insecurity, the third prediction is

> 8Note that the tests of information asymmetry that we provide are specic to our urban setting and data availability. Other tests of asymmetric information have been conducted in dierent settings on the basis of dierent theoretical models and empirical strategies. For instance, in nance, Chan et al., (2008) test the presence of informed traders using the changes in the trade ows of stock market transactions. In insurance market, Chiappori and Salanié (2014) discuss the presence of asymmetric information using the correlation between insurance coverage and ex-post risk.

19
that a similar price variance for non-statutory and statutory plots reveals the existence of information asymmetry.

Second, the spatial pattern of land tenure transformation is dierent according to whether brokers are informed or not. In general, informed brokers progressively attempt to transform land tenure across the urban space in the interval [ _<u>x, x</u>_ <u>]</u> , while uninformed brokers attempt to transform the whole urban space beneath some distance from the city center _x_<sup>_∗_</sup> . This highlights a spatial dierence in terms of transaction frequency between the two versions of the model: in the uninformed case, property right conversions abruptly cease beyond the critical location _x_<sup>_∗_</sup> , whereas in the informed case, there can be a smooth phasing out of property right conversions over [ _<u>x, x</u>_ <u>]</u> .

# 6 Empirical analysis

## 6.1 Data

We use the data of a unique survey of 1 _,_ 655 land plots that were transferred as unbuilt land plots in Bamako, Mali, between 2009 and 2012 (Durand-Lasserve et al. 2015). Current information was obtained at the year of the survey (2012) and retroactive questions were asked regarding the situation at the time of the transaction (between 2009 and 2012). The database reports characteristics such as price, tenure status, location (GPS coordinates), intended land use (i.e., residential vs. agricultural), surface area, infrastructure and services, municipality, distance to paved main road and river, as well as details on buyers and sellers.<sup>9</sup> The sampling ensures extensive coverage of the Bamako greater area, at regular intervals along paved main roads extending outward from Bamako. The coverage of the survey area makes it possible to draw conclusions regarding the characteristics of the transfers and provides the best possible sample that could be constructed in the Malian context for an empirical analysis. Figure 3 displays the land plots on the Bamako map.

We drop the observations located farther than 40 km from the city center, those without residential or agricultural use and those without some missing data, which leaves 1 _,_ 259 observations. We consider two types of land rights: non-statutory rights, which includes both customary land and other plots held without any property rights, and statutory rights, which includes land plots with property rights such as permits to occupy and title deeds. We also consider two land uses: agricultural and residential. Therefore, combining land right and use types, we focus on three categories: statutory residential, non-statutory residential and non-statutory agricultural. We exclude statutory agricultural plots because they make for a tiny minority of plots and lie outside the scope of our model. This reduces our sample to 1 _,_ 150 land plots.

> 9Information on each plot was collected by a team of investigators through a variety of local informants (neighbors, informal brokers, customary chiefs, buyers, users, sellers, and elected local ocials).

20
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Table 1: Summary statistics

||||Resi|dential||||Agricultural|
|---|---|---|---|---|---|---|---|---|
||S|to S|N|S to S|NS|to NS||NS to NS|
|Variable|Mean|Std. Dev.|Mean|Std. Dev.|Mean|Std. Dev.|Mean|Std. Dev.|
|Log(land price) (CFA/m2)|8.16|1.462|6.808|1.403|6.759|1.231|3.952|1.226|
|Distance to CBD (km)|15.702|5.796|17.737|4.914|20.725|6.646|30.522|6.191|
|Log(area) (m2)|6.164|0.820|6.363|0.982|6.134|0.92|9.541|1.459|
|Distance to road (km)|3.295|3.259|3.189|2.71|4.84|4.588|6.674|6.338|
|Water dummy|0.066|0.249|0.029|0.17|0.024|0.152|0.014|0.117|
|Electricity dummy|0.022|0.147|0.01|0.099|0.001|0.038|0|0|
|South bank dummy|0.423|0.495|0.275|0.448|0.545|0.498|0.445|0.499|
|Number of observations||227||102||675||146|

Note: The table presents tenure transitions between the time of transaction (2009-2012) and the time of the survey (2012). Log is the Neperian logarithm. "NS to S" indicates plots with transition from Non-Statutory to Statutory right. "S to S" and "NS to NS" represents plots that remained Statutory and Non-Statutory respectively. Seven plots have been withdrawn as the price data was missing.
<!-- Start of picture text --> 2<br>an®<br>2)<br>oO<br>x=<br>7)<br>SE<br>N<br>Oo<br>0 4 8 12 16 20 24 28 32 36<br>HE Residential S to S HEE Residential NS to S<br>[7 Residential NS toNS [0 Agricultural NS to NS<br><!-- End of picture text -->
Table 1 showed that within less than 3 years (and in some cases within just a few weeks), more than 13 percent of plots ( = 102 _/_ (102 + 675) ) that were initially nonstatutory at the time of the transaction became statutory. Within 20 km from the city center, we see that 20 percent of initially non-statutory plots have become statutory. Beyond 20km, the percentage of non-statutory plots converted to statutory plots drops to less than 6 percent. In line with the model, this conrms that the conversion process tends to be more intense closer to the city center. Table 2 conrms this trend by showing a probit regression of the transition to statutory status among initially non-statutory plots. The rst column shows a negative and signicant coecient on distance to the CBD in the absence of controls. In reality, however, workers' trips to the CBD are not only aected by the geographical distance to the CBD but also by their access to a road. The second column adds the eect of the second spatial variable, namely the distance to the main road. As it can be seen, this variable also has a strong and signicant eect on residential plot transitions to statutory rights. Tenure transitions are more likely for higher value of transacted land plots: higher non-statutory land prices and larger plot areas indeed entice brokers to secure their assets by obtaining statutory rights. This is conrmed in the fourth column, which displays signicant eects of those two factors. Land price, however, is an endogenous variable determined by exogenous factors such as distance to the CBD and to the main road, access to electricity and water and location characteristics. The third column shows that controlling for those exogenous factors eliminates the impact of price on land statutory transitions, but it does not aect the impact of the distance to the CBD.

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Table 2: Transition from Non-Statutory to Statutory Right (Residential, Probit)

|Dependent variable: Transi|tion NS to|S|||
|---|---|---|---|---|
|Distance to CBD (km)|-0.041<sup>_∗∗∗_</sup>|-0.047<sup>_∗∗∗_</sup>|-0.056<sup>_∗∗∗_</sup>||
||(0.010)|(0.011)|(0.014)||
|Distance to road (km)||-0.080<sup>_∗∗∗_</sup><br>(0.019)|-0.081<sup>_∗∗∗_</sup><br>(0.021)||
|Log(area) (m2)|||0.25<sup>_∗∗_</sup><br>(0.080)|0.23<sup>_∗∗_</sup><br>(0.071)|
|Water dummy|||-0.41<br>(0.44)||
|Electricity dummy|||1.09<br>(0.98)||
|South bank dummy|||-0.42<sup>_∗∗_</sup><br>(0.15)||
|Log(land price) (CFA/m2)|||0.039<br>(0.071)|0.13<sup>_∗_</sup><br>(0.056)|
|Observations|777|777|777|777|

Note: Standard errors in parentheses.<sup>_<u>∗</u>_</sup> _p <_ 0 _._ 05 _,_<sup>_<u>∗∗</u>_</sup> _p <_ 0 _._ 01 _,_<sup>_<u>∗∗∗</u>_</sup> _p <_ 0 _._ 001 _._ Year dummies included. Data: survey on Bamako, Mali, 2009-2012. The table reports the probit regression of log of land prices on distance to city center. The sample is restricted to the residential plots that were Non Statutory at the time of transaction.

# 6.3 Prices

Next, we estimate the dierential land price gradients for residential plots with statutory and non-statutory rights. We restrict our attention to the land plots that have statutory rights at both dates of transaction and survey (S to S), and to those that are transformed from non-statutory to statutory rights between transaction and survey dates (NS to S). This restriction allows us to separately identify the land purchases by those among urban workers who purchase formal land and by brokers who purchase land from customary owners before formalizing it as described in our model.

Table 3 displays OLS regressions of the log of the sales price on various sets of price determinants. The rst column excludes the determinants associated with distance to the CBD and tenure. Controls include plot area, distance to paved main road, dummies for water connection, electricity connection and South bank location, and year dummies to control for land price ination. All coecients have the expected sign and are signicant at the 1 percent level (except for access to electricity, which is not signicant). The second column adds the eect of distance to the CBD. As in the 25
theoretical model, distance has a negative and signicant coecient. The third column adds a control for a purchase without a statutory right (coecient of NS purchase). As in the theory, the absence of statutory rights decreases the value of purchased land plots. The last column adds the combined eect of absence of a statutory right and distance of the CBD. This strengthens the negative impact of purchasing a plot without a statutory right (coecient of NS purchase), but this impact attenuates with distance to the CBD (coecient of NS purchase*distance). Accordingly, this negative eect vanishes at about 36 km ( 1 _._ 77 _/_ 0 _._ 049 ). This empirical result nally conrms our rst model predictions: the land price gradient is steeper for statutory than for nonstatutory plots. The land gradients are respectively _−_ 0 _._ 13 and _−_ 0 _._ 08 (= _−_ 0 _._ 13+0 _._ 049 ) for the former and for the latter. Applying (13), the brokers' average of compounded � probability E [Π( _q_ ) _| x < x_ ( _q_ )] over the city is estimated to be 0 _._ 62 (= 0 _._ 08 _/_ 0 _._ 13 ).

Table 3: Land price gradients and tenure (OLS)

|Dependent variable:|Log(land|price) (CF|A/m2)||
|---|---|---|---|---|
|Distance to CBD (km)||-0.13<sup>_∗∗∗_</sup>|-0.12<sup>_∗∗∗_</sup>|-0.13<sup>_∗∗∗_</sup>|
|||(0.010)|(0.0091)|(0.010)|
|NS purchase|||-0.92<sup>_∗∗∗_</sup>|-1.77<sup>_∗∗∗_</sup>|
||||(0.11)|(0.38)|
|NS purchase*Distance||||0.049<sup>_∗∗∗_</sup><br>(0.021)|
|Log(area) (m2)|-0.69<sup>_∗∗∗_</sup>|-0.42<sup>_∗∗∗_</sup>|-0.41<sup>_∗∗∗_</sup>|-0.46<sup>_∗∗∗_</sup>|
||(0.080)|(0.067)|(0.061)|(0.064)|
|Distance to road (km)|-0.12<sup>_∗∗∗_</sup>|-0.12<sup>_∗∗∗_</sup>|-0.13<sup>_∗∗∗_</sup>|-0.12<sup>_∗∗∗_</sup>|
||(0.022)|(0.018)|(0.016)|(0.016)|
|Water dummy|1.04<sup>_∗∗∗_</sup>|0.60<sup>_∗_</sup>|0.48<sup>_∗_</sup>|0.50<sup>_∗_</sup>|
||(0.31)|(0.25)|(0.23)|(0.23)|
|Electricity dummy|0.97|1.16<sup>_∗∗_</sup>|1.12<sup>_∗∗_</sup>|1.13<sup>_∗∗_</sup>|
||(0.52)|(0.42)|(0.38)|(0.38)|
|South bank dummy|0.91<sup>_∗∗∗_</sup>|0.81<sup>_∗∗∗_</sup>|0.68<sup>_∗∗∗_</sup>|0.65<sup>_∗∗∗_</sup>|
||(0.14)|(0.12)|(0.11)|(0.11)|
|Constant|11.9<sup>_∗∗∗_</sup>|12.4<sup>_∗∗∗_</sup>|12.8<sup>_∗∗∗_</sup>|13.3<sup>_∗∗∗_</sup>|
||(0.57)|(0.46)|(0.41)|(0.47)|
|Observations|330|330|330|330|
|_R_<sup>2</sup>|0.457|0.649|0.715|0.720|

Note: Standard errors in parentheses. _<u>∗</u> p <_ 0 _._ 05 _,_ _<u>∗∗</u> p <_ 0 _._ 01 _,_ _<u>∗∗∗</u> p <_ 0 _._ 001 _._ Data: survey on Bamako, Mali, 2009-2012. The table reports the OLS regression of log of land prices at transaction date on controls (including year dummies). All plots are residential and statutory at the time of the survey. A share of plots are Non-Statutory at the time of the purchase (NS purchase) 26
<!-- Start of picture text --> vT<br>a a oat ary<br>es Co re<br>3 ‘ * o** a heme, O8* . . °<br>ao " «8a a<br>“90 & a” a a a . °<br>Gy a °<br>y<br>0 10 20 30 40<br>Distance to CBD ( km )<br>» Residential, S to S — Residential, S to S fit<br>® Residential, NS to S —— Residential, NS to S fit<br><!-- End of picture text -->
CBD: the averages of the squares of residuals become 0 _._ 36 and 1 _._ 38 , respectively. Those numbers therefore conrm our second prediction: land prices have larger variance for plots that experience a tenure transition to statutory rights.

By the same token, the last nding runs against the hypothesis that brokers are uninformed. According to the third prediction of our theoretical analysis, at a same distance from the city center, informed brokers set dierent prices whereas uninformed broker propose a single price reecting the expected value of heterogeneous eviction risks. A discrepancy in the price variance for non-statutory and statutory plots therefore provides evidence about the absence of information asymmetry.

We can further check the existence of information asymmetry using our fourth model prediction: property right transformations abruptly cease beyond a critical distance from the CBD under asymmetric information whereas they smoothly phase out under symmetric information. Towards this aim, we compare in Figure 6 the cumulative shares of observations across the geographical space of residential plots that held statutory rights at the purchase time (S to S) and those that did not but acquired them later on (NS to S). The gure shows that the sales of statutory residential plots (blue curve) are mostly uniformly distributed across the urban space between 10km and 28km, whereas the sales of non-statutory land plots (brown curve) that get transformed into statutory residential land plots are more concentrated about 18km from the city center. In the uninformed broker model, there is no tenure transformation beyond the critical location, so that the cumulative frequency distribution is expected to be vertical at that location. The data suggest this is the case, as the tenure transformation peaks at about 18km. However, the absence of a sharp vertical edge makes us hesitant to conclude in favor of a model with only uninformed brokers. On the one hand, the absence of a vertical edge can rst stem from brokers' heterogeneity in their capabilities to collect information. Our test would therefore suggest the coexistence of both informed and uninformed brokers. On the other hand, the absence of a vertical edge can also stem from the presence of spatial heterogeneity. One way to check the issue of spatial heterogeneity is to study narrower areas (with reasonable numbers of observations). Figure 7 (a) and (b) in the Appendix reproduces Figure 6 for the left and right banks of the river (resp. north and south of the city). Interestingly, this test conrms information asymmetry in the left bank (see the vertical line at about 18 km from the city center) but suggests a weaker asymmetric information in the right bank. Finally, heterogeneity also partially comes from access to the main paved roads that connect to the CBD. As a signicant share of commuting occurs on non-paved roads, it is relevant to investigate whether information asymmetry is detected for plots away from paved roads. Figure 8 in the Appendix reproduces Figure 6 as a function of distance to a paved road and conrms evidence of information asymmetry. This suggests that the brokers that operate in less accessible areas have less information on risks regarding customary land plots.

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<!-- Start of picture text --> 2<br>2<br>oO<br>co<br>=o<br>®<br>2<br>&<br>zx<br>=]<br>(6)<br>N<br>Oo<br>0 10 20 30 40<br>Distance to CBD ( km )<br>—— Residential, S toS —— Residential, NS to S<br><!-- End of picture text -->
to statutory property rights. A key feature of the model is that land tenure is risky and brokers who purchase land from customary owners have the capacity to formalize tenure and reduce insecurity. Information on tenure insecurity and on the ease of formalization may be symmetric or asymmetric across customary land sellers and brokers. Under symmetric information, brokers perfectly evaluate the idiosyncratic formalization probability of each land plot. As a result, we show that the share of customary land smoothly decreases with distance from the city center. Under asymmetric information, brokers are unable to evaluate these risks. As a result, there may be a failure in the land transformation market so that land transformation abruptly ceases at some distance from the city center. The paper then checks the predictions about tenure conversions using a geo-referenced survey of land plots in Bamako, Mali and its peri-urban area. The empirical analysis conrms the main features of the model and concludes that intermediaries may have asymmetric information on the plot that they purchase. Our conclusion regarding the existence of information asymmetry is even clearer for the left bank of Bamako and at a distance from paved roads, suggesting broker heterogeneity across locations.

To our knowledge, our paper is the rst to study the conversion of land use and land tenure in the light of an urban theoretical framework. Although we are able to provide an indirect but conclusive empirical test of the model using the limited available data for one particular city, there is a clear need for additional empirical studies to further describe, collect relevant data on, and analyze the ongoing process of urban expansion in Sub-Saharan African cities. Such studies will be necessary to understand in more detail the barriers associated with land use transactions and land tenure transformation, and, in line with our model, the specic informational barriers and information asymmetries that can aect the process. In this respect, improving information on risks and tenure conversion processes would help improve the eciency of the process. Equity issues regarding asymmetric bargaining power in land transactions, dispossession of customary owners through distressed sales, abuse of power by village chiefs selling co-villagers' land, and the potentially poverty enhancing aspect of land use conversion should also be studied in the future. These are important aspects that policies will need to take into account in conjunction with measures to reduce the cost of registration in order to ensure that cities can grow in more ecient and equitable ways.

Acknowledgments. The authors are grateful to J. Zhang, J. Wrona and J. Van Ommeren as well as to participants to the 13th Meetings of the Urban Economics Association and to the Tinbergen Institute seminar for useful comments. The data used in this paper were collected under funding from the Multi Donor Trust Fund for Sustainable Urban Development.

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