Effects of the 2014 Ukrainian land decentralization reform on land rental auction performance

Abstract

Ukraine has 10.4 million hectares of public farmland, which surpasses most European countries’ total farmland. A significant portion of that is allocated to private producers through farmland rental auctions. The country’s land decentralization reform of 2014 gradually transferred the management of more than four million hectares from the central governmental agency to local communities governed by local councils. Consequently, both the central and local agencies can organize rental auctions which may vary in their outcomes due to different institutional embedding. While prior studies have yielded valuable insights on Ukrainian farmland auctions, they primarily focused on the winning bid, often using narrow samples, and did not account for sample selection and spatial dependence. Our objective is to evaluate the reform’s success by assessing the effect of institutional embedding on the size of the winning bid, the probability of auction success, and the price increases during auctions. We develop theoretical models of the determinants of these auction outcomes and translate them into three spatial econometric models to quantify the performance differences between rental auctions organized by the two institutions. On average, auctions organized by local councils exhibit a 28-percentage-point higher success probability, a 25 % higher winning bid, and a 102-percentage-point larger price increase. Therefore, the decentralization of land management was a success as it enabled local communities to obtain more public funds from auctions to benefit local rural development, setting an example for other countries with large public land endowments. Future research needs to quantify the exact mechanisms underlying the observed effects.