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Ownership security and land rights are important incentives to increasing land productivity and hence land value. This paper reviews the development of formal and informal land rights in Thailand over time and describes the present situation in which a significant amount of land is occupied by farmers without legally secured land rights in areas classified as forest reserves. A review of the literature on the economic implications of land rights suggests that farmers lacking secure ownership will have less incentive to invest. Consequently, the theory predicts that land which is not legally held by its occupant will be less productive. Since the market price of land reflects its productive potential, a corollary of the received theory postulates that land which is not legally held will have a lower market price, if such land can be traded. The present paper develops a formal model of farmers' land acquisition, investment and input decisions assuming credit rationing. The policy implication of this analysis is that allowing farmers to obtain full legal ownership in areas which are classified legally as forest reserve is a socially beneficial policy in many provinces.
