This dissertation is comprised of two essays, which explore the cost of factor misallocation in agriculture in Vietnam. The first essay addresses the measurement error in estimates of resource misallocation. The second essay is a policy evaluation of the Vietnam 2013 Land Law studying the impact of improved tenure security on land markets, land allocative efficiency, employment, and household welfare. In the first essay, I examine misallocation by investigating how measurement errors in output and inputs affect the estimation of agricultural productivity loss associated with resource misallocation. I find that measurement errors account for a substantial part of the estimated total factor productivity (TFP) variations (30-45% at the national level). Correspondingly, failing to account for measurement errors would considerably overestimate the gains from resource reallocation. Based on the preferred Two-Stage least squares (2SLS) estimation of the production function, measurement errors in both output and inputs will lead to an overstatement of production gains by 2-3-fold if not adjusted in productivity estimation. The results are consistent regardless of whether the analysis is explored by analyzing household productivity variation across years or across households within local communes. The findings caution against relying on estimates unadjusted for measurement error of potential gains from reallocation in cost-benefit analysis of reallocation. Certain caveats and assumptions of the analysis are discussed in the essay. The second essay investigates the impact of increased tenure security on land transactions and the ensuing productive efficiency, as well as its spillover effects on the labor market and overall household welfare. Vietnam’s 2013 Land Law, which extends the lease term for usufruct rights for annual land from 20 years to 50 years, provides the opportunity for difference-in-differences (DID) identification. This involves the first difference between annual land and perennial land, and the second difference between before and after the law was passed, to study the effect of increased land security. Plot-level data are available for the land transfer outcomes (lease out, lease in, sold, purchased). For the welfare outcomes, the impacts of the land law are estimated at the household level. Household outcomes include the household’s food expenditure per capita as well as indicator variables regarding labor (wage labor, nonfarm wage labor, wage labor in agriculture, wage labor in commune, wage labor in province, and wage labor outside of province), and whether households have their own business. Plot-level DID results reveal that annual plots are 3 (or 6) percentage points more likely to be leased out (or sold) as a consequence of the law, while there is no significant effect on the likelihood of annual plots being leased in or purchased. This result is in line with the expectation that the heightened security generated by the law is a supply factor affecting the supply of land. As both rental and sale markets are found to transfer land from less productive to more productive farmers, the more active land markets incentivized by the law are expected to enhance land use efficiency. Household-level analysis shows that the passage of the law is associated with a shift from self-employed farm work to wage employment, especially agriculture-related wage work that is closer to home. Household food expenditures per capita are also found to increase due to the law. Given these findings, the study suggests that the law can be a low-cost tool in increasing land market participation with some effects on the labor market and improving welfare.
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