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Abstract

Land is an essential factor of production for agriculture, horticulture, forestry as well as other land related activities. Institutions that govern its use determine the sustainability and efficient use of this essential resource. In Ethiopia all land is publicly owned. Such an institutional setting has resulted in major degradation of Ethiopia’s land resources and dissipation of the resource rent, as available forest and grazing lands are exploited in a suboptimal fashion. An alternative to current institutional setting is to assign private property institution, but this will lead to welfare costs. In this paper, we examine the welfare effects (from consumer perspective) of change in institutional setting to forest and grazing lands using a unique data set covering 200 cross-section households in Tigrai, Northern Ethiopia. Finding suggest that changing the current institutional setting could indeed be welfare reducing. Given the finding, it is little wonder the government is reluctant to impose a private property institution on Ethiopia, despite continued land degradation.

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