Land acquisition for industrialization and compensation of displaced farmers

This paper addresses the question of how farmers displaced by acquisition of agricultural land for the purpose of industrialization ought to be compensated. Prior to acquisition, the farmers are leasing in land from a private owner or local government with a legally mandated sharecropping contract. Compensation rules affect the decision of the landlord to sell the land ex post to an industrial developer, and ex ante incentives of tenants and landlord to make specific investments in agricultural productivity. Efficiency considerations are shown to require farmers be over-compensated in the event of conversion.