Highway to Capacity? Theory and Evidence on Eminent Domain Conflict in India

• In Event: State Capacity in Comparative Lens

Abstract

Why do land acquisition (i.e. eminent domain) procedures often break down despite the state’s prerogative to acquire private land for public development? I argue that variation in land acquisition conflict is explained by bureaucrats’ access to informal information about landowners’ reservation price for their land. Bureaucrats that are knowledgeable can resolve conflicts about compensation for land. However, these bureaucrats also use their informational advantage to extract rents from projects, which results in more stalled investments. To test this theory, I draw on outcomes for over 100,000 large infrastructure projects in India. Furthermore, I leverage as-if random assignment of civil servants to their home states (domiciles) to measure variation in their ability to estimate the value of land. I find that domiciled bureaucrats reduce land acquisition-induced conflict by 12 percent. I show that this effect is driven by better access to information via common language use with landowners, and not by other explanations such as coercion or side payments. Finally, as evidence of rent-seeking behavior, I demonstrate that domiciled bureaucrats contribute to more abandoned projects and, consequently, they are less likely to get promoted. Together, the results of this paper provide a novel mechanism for why states struggle to build capacity: low initial level of state capacity breeds land acquisition conflict or bureaucratic corruption, both of which undermine the development of new infrastructure.

Author

• Aliz Toth, Stanford University