Land market activity: A framework

Abstract

This paper sets out to define a methodology for identifying markets as active or inactive. This is an important problem especially in the case of the land market, where there are two sub-markets and the average level of activity in the sale and purchase market can be low. While the number of transactions in the two villages taken up for analysis does not by itself permit a classification into active or inactive markets, the methodology presented in this paper provides a basis to distinguish between the nature of activity in these two markets. The activity of a market is defined in terms of the turnover in the market in the presence of alternative uses for land. The alternate uses to resources like land is an indication of the nature of the economy. In a static economy, there are no new uses to resources. So both the demand for land and the supply of land are driven by external shocks, i.e., there would be very little ground for sustained activity in the land market, implying the land market to be inactive. An expanding economy, on the other hand, would generate alternate uses for some or all of the resources. If the uses generated changes the returns to land or to other factors of production, the relative prices for cultivation of land would have changed, requiring some reallocation of the resources. This would generate some seller of land some buyers, introducing transactions in the land market. Rapidly expanding economy would therefore witness an active land market: high turnover so as to accomodate emerging alternative uses for the resources. Here it is crucial that the opportunities emerging in the expanding economy affect the agents in the economy asymmetrically, so as to ensure the existence of both suppliers of land and demanders of land.