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The Powerful, the Powerless, and the Grabbing: Non-Nash Land Grabbing in the Lab

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Abstract

Our paper models the interaction between authorities in a country with poor rule of law and a potentially acquisitive agent (e.g., an investor interested in illegitimate land acquisition), whose actions are possibly licensed by the corrupt authorities. We explore this relationship in a two-stage experiment where the authorities have the right to expropriate the investor’s earnings, if they are not content with the share of the profit they receive as a bribe. Realizing this condition, potential investors’ initial decision is whether to become a land grabber in such an authoritarian state or not. Although the risks are obvious, we find that many agents do not act according to the Nash equilibrium of the game. Many subjects in the first stage of the game, who face a potential total loss when choosing to enter into the second stage of the game, accept the risk and try to bribe the second stage dictator. Also deviating from the Nash equilibrium, the second-stage dictators often appear to be appeasable by bribery.

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Notes

  1. Our experiment was designed and performed in October 2012; in 2013 the first report on a land grabbing experiment by Dufwenberg et al. (2016) was published which is different from ours in a number of ways, as we set out at the end of Sect. 2.

  2. The FAO (2014, 8) refers to World Bank estimates according to which 40 percent of land area in their sample of land transactions was acquired by foreign investors. As for domestic investors, a fitting example are white farm owners in Zimbabwe, most of whom were expropriated during the last decade by Robert Mugabe's regime.

  3. Communal farmland in the sense of not privately owned land but land that is jointly used by small-scale local communities and had been guaranteed to its local users by means of inheritance and/or, in many cases, state law (Hall 2011).

  4. Graf et al. (2013) also warn against “land-titling” as a method to combat land-grabbing, as this “well-meaning” practice can get hijacked by politically and economically powerful elites. As an example they give the LAMDP (Cambodian Land Administration, Management and Distribution Program); while it “initially prioritized the improvement of tenure security among its goals it has on the contrary become a legal instrument to transfer state public land into state private land and lease it to mostly foreign agribusiness investors”.

  5. This, for example, was the case in Guatemala, where local “Colonos” (tenant farmers) have legally, but not legitimately, been left landless and jobless by a large sugar mill company, with original false promises of new employment. Thus, to confine the term "land grabbing" to cases of "purchase or lease" (Daniel and Mittal 2009, 1) might be a bit narrow. For further information on the Guatemala case study see the documentary film “Evictions in the Polochic Valley”, IDEAR-CONGCOOP and Caracol Producciones, Guatemala, May 2011. Available at: www.caracolproducciones.org.

  6. If we consider the most common transfer of 6 €, the aA/bA ratio must be lower than 1/40 for player A to choose not to confiscate everything from player I. For a lower transfer of 4 €, the aA/bA ratio must be lower than 1/50, which not surprisingly is a stricter condition than the one necessary for the transfer of 6 €. And for the widely-“desired” transfer of 8 €, the aA/bA ratio must be lower than 3/100, which is a more relaxed condition than the two mentioned above.

  7. The distinction between the two-player and the three-player version of the game becomes more important if we assume, instead of ERC, quasi maximin preferences à la Charness and Rabin (2000). Three components enter into their utility function: own payoff, payoff of the player who is worst off, and the sum of payoffs. The latter is constant in our case. If there is a player L whose property has been confiscated, then there is one player with zero playoff anyway, and the only thing that player A can do to maximize his utility is to maximize his payoff. Not so in the two-player version, in which he can prevent the worst payoff to be 0 is he accepts the offer of T, and he does so even if T is 0 if he weights his own payoff low enough..

  8. Binomial tests for both implementations for the success rate being ≥ 90 percent, i.e., less than or equal to 10 percent of cases are expropriations, are rejected at the 1 percent level (p < 0.0001).

  9. In the real world, as previously mentioned, land-grabs are frequently sanctioned by state or local authority, which requires arrangement over possible transfers to be made in advance of the land-grab. In a laboratory setting this could be accomplished by implementing a communication possibility between player A and I in advance of their decision. However, this set-up is meant to make the arising theoretical dilemmas especially salient. Further communication in advance of the players' decision would not change the outcome predictions as it would be "cheap talk" without enforceable value.

  10. Suboptimal bribes would also have vanished after a few rounds of learning. However, how many chances do you have in real life to revise your decisions regarding investments or bribing authorities?

  11. David (2002) discusses crony capitalism and corruption in South Korea and the Philippines; Faccio (2006) concentrates on politically connected firms and Maxfield and Schneider (1997) look at the particulars of the connection between business and the state in developing countries.

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Acknowledgments

We are indebted to Vimaly Savannarideth for helpful discussions in an early stage of the project, and to three anonymous referees, participants of an IAAEG seminar in Trier, a MAGKS seminar in Rauischholzhausen and the 40th Hohenheimer Oberseminar, especially Ulrich Heimeshoff, for comments.

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Correspondence to Björn Frank.

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Appendix: Translated Instructions

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Albrecht, F., Frank, B., Gobien, S. et al. The Powerful, the Powerless, and the Grabbing: Non-Nash Land Grabbing in the Lab. Homo Oecon 33, 219–242 (2016). https://doi.org/10.1007/s41412-016-0024-1

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