Research

Indigenous communities often inhabit ecologically sensitive land without formal property rights, leaving these lands vulnerable to commercial exploitation. Whether formalizing land rights can deter encroachment is an open question. We develop a model of firm behaviour which shows that tribal forest rights reduce average firm activity near tribal areas, but shift the composition toward larger firms. This happens because land rights raise land acquisition costs and reduce land prices. Higher transaction costs dominate for smaller firms, whereas large firms benefit more from cheaper land. We test the model’s predictions using India’s Forest Rights Act as a natural experiment, which granted forest rights to tribes in 2008. New data on deforestation permits filed by firms confirm that land demand declines post-policy in districts with high tribal forest-dependent populations, yet encroachment by sectors with large projects persists. Using a detailed firm panel, we further document an average decline in firms’ land valuation due to falling land prices, with significantly smaller effects for large firms. Consequently, land conflicts and population displacement intensify post-reform, especially around surviving large projects. Our findings indicate re-sorting rather than a retreat of development pressure on tribal forest land.