You're the Economist

You've recently entered a graduate program in economics. You are interested in the problem of poverty, especially whether/how a country's institutions affect the extent of poverty among its people.

Graduate students work closely with the professors in their field of study, and part of the reason you applied to this university is because you know that the professors here share your interest in institutions and your hope that economics may provide some insights into how to alleviate the suffering of the world's poor.

Good news! At the first meeting with your advisor, you were told that you'll be working as a research assistant to a group of professors studying poverty in Latin America.

Background - What you KNOW

Sometimes, things that "everyone knows" turn out not to be so. For example, one of the common beliefs about poverty is that subsistence farmers in less developed countries are trapped in agricultural poverty. In the last decades of the 20^th century, some economic researchers questioned this belief and began to test it in the laboratory of the real world. Their willingness to consider again what "everybody knows" revealed that subsistence agriculture is not necessarily a one-way road to poverty. Under the right conditions, farmers can and do increase the value of their land through hard work and investment. They are then able to improve their standard of living and that of their children by producing more or by profiting from the sale of the land.

There is evidence that this is the case in Amazonian Brazil. The Amazon basin is Brazil's land frontier today, much as the trans-Mississippi west was for the United States in the 19^th century. It is relatively easy for people to move to the frontier because the lack of infrastructure - highways, law enforcement, communications, etc. - makes it hard to stop them. People find pieces of land they think promising, and settle there without purchasing the land or getting permission from the government (the owner of most of the land in this area). This practice of "invading" the frontier has proven to be a reasonably reliable method of gaining wealth. In Brazil, the Amazon Basin has many "squatters" who farm, hunt, and fish on land to which they hold no formal title of ownership.

Building wealth from frontier land isn't easy and takes time. Squatters move to the frontier ahead of the rest of civilization. They build small dwellings, clear land and begin to grow annual crops or to graze animals. Those who move later to the frontier purchase the land and its improvements. The squatter moves on, finds another piece of land and repeats the process. Usually, the sale of a claim allows him to increase his wealth - perhaps enough to purchase a cow or some chickens, perhaps enough that he can build a bigger hut or a corral or barn on his next piece of land.

In the early 1990s, economists Lee Alston, Gary Libecap, and Bernardo Mueller analyzed four settlement areas in the Amazon basin and confirmed that ". . . in contrast to [the formerly accepted] view that a class of settlers remains landless, drifting from frontier to frontier. . . ," subsistence agriculture on the frontier could and often did enable farmers to begin rising out of poverty and to experience significant improvements in wealth and standard of living.

In Titles, Conflict, and Land Use - The Development of Property Rights and Land Reform on the Brazilian Amazon Frontier, they explain the process of wealth creation:

The initial settlers should be specialists in clearing and making rudimentary investments. As development proceeds, population densities increase, transportation improves, land values increase, and market transactions for land emerge. . . . During the transition, lower-valued users of land should sell out to higher-valued users. Typically, this means that those who sell have less human and physical capital than those who stay. . . . Whether initial settlers stay or opt to move on to another frontier depends on their accumulation of assets - wealth and experience - since their arrival. As long as settlement is wealth enhancing, that is, settlers acquire wealth and experience, at some point in their life cycle former specialists in clearing will choose to stay rather than move to a new frontier. (104-5)

Set-up - What do you WANT to know?

Your professor pointed out the conditional phrase in her colleagues' conclusions - that subsistence farmers can improve their economic well-being under the right conditions. The question that will guide the next steps in the research is, "What are the right conditions?" And "Is having title one of those right conditions?"

Specifically, your group will be analyzing data about land titles to see if property rights play a role in helping subsistence farmers on the Amazon frontier climb out of poverty.

The research group hired Ricardo Tarifa, a native Brazilian, to conduct surveys with poor farmers in 4 frontier settlements, including Altamira. He spent several hours with each settler, asking what, if any, changes the settler had made to the land on which he lived. He noted what investments or improvements the farmer had made to the land: Was the farmer growing perennial (tree) crops or annual crops? Was he fencing land to raise livestock for sale, or did he just have a few animals for personal consumption? He also found out which settlers had title to their land.

You begin your role in the research project by reading parts of Ricardo Tarifa's journal and looking at some of the survey data he collected. Then, you'll begin to analyze the data to see if there is a relationship between property rights and Amazon Basin settlers' efforts to pull themselves out of poverty.