Trust, tenure security and investment in high-value forests

Abstract

In customary tenure systems, the literature documents the limitations of land formalization in ensuring tenure security and fostering investment. One hypothesis put forward for this is that formalized tenure arrangements offer little legal protection; and as a result, farmers look for their socio-political connections to ensure tenure security and make investment decisions. By distinguishing trust in institutions from trust in social networks, this study examines their relationship with tenure security and investment in high-value trees. Using data from Liberian farmers who grow rubber, cocoa and coffee, we use two-stage IV regression to explore the divergent relationship of the trust indicators with tenure security. Moreover, using tenure security as an endogenous switching variable, we explore its correlation with investment. We find both trust indicators are positively related with tenure security while alternative specifications appear to show the more important role of trust on institutions for enhancing tenure security. We also find both trust indicators spur investment, and note of their divergent influence on investment in different trees. These results reflect a growing recognition of the need to decouple trust on institutions from social trust to give policy development a useful direction on the divergent influence of tenure institutions, such as social and institutional trust.