Factors Affecting Land Use Decisions in The Peninsula of Santa Elena, Ecuador: A Transaction Costs Approach


Paul Herrera Ramón Espinel Guido Van Huylenbroeck


Water scarcity has been appointed as the key-limiting factor for the development of agriculture in the Peninsula of Santa Elena. To solve this problem, the Ecuadorian government carried out the construction of one of the biggest irrigation projects. However, after two decades of functioning, less than 30% of its capacity is being used. This article analyzes factors associated to Transaction Costs (CT), which can influence land use decisions. Options studied are: to invest in agriculture or livestock production, or to speculate with its value through land sales. The landowner’s decision problem is analyzed following the Heckman’s two-stage estimation procedure, which allows differentiating between factors associated to fixed and variable TC. The hypothesis is that factors related to fixed-TC influence the decision to participate (that is, the decision to use the land productively or speculatively, which is modeled in the first stage of Heckman’s); while both, factors associated to fixed and variable TC, influence the level of participation (that is, decisions about land allocation to one or each decision option, modeled in the second stage). The results show that access to assets and access to information are among the more influential TC factors, which favor agricultural production instead of land speculation.

Palabras clave

Transaction costs, Heckman’s two-stage estimation procedure



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