Latifundia revisited: Market power, land inequality and agricultural efficiency. Evidence from interwar Italian agriculture

This paper proposes a new interpretation of the historically controversial role of Italian latifundia. Relying on standard economic theory, the paper explores a simple though neglected mechanism linking land inequality and inefficiency: market power. In underdeveloped economies with serious constraints on labor mobility, high ownership concentration will endow landowners with market power in local labor markets. The resulting equilibrium explains many of the often criticized features of latifundia, without the need to factor in irrational behavior (the preferred explanation of Italian traditional historians) or social institutions and capital market imperfections (explanations advanced by economists in different contexts). According to the model here explored the main effects of inequality are of a distributive rather than of a productive nature. The market power hypothesis is strongly supported by the available quantitative evidence provided by an unexploited dataset on all local labor markets of Italy at the end of the 1930s.