Which statement best explains tenure security's impact on investment?

Which statement best explains tenure security's impact on investment?

• A. Secure tenure discourages long-term investment.
• B. Secure tenure encourages long-term investment; insecurity discourages investment and can lead to fragmentation or disputes.
• C. Tenure security has no effect on investment.
• D. Customary rights always provide secure tenure.

Answer: (B)

Tenure security shapes the risk people face when investing in land. When rights are clear and protected, landholders expect to reap the returns from long‑term improvements, so they invest in soil restoration, irrigation, trees, and other capital-intensive upgrades, and lenders are willing to provide credit with land as collateral. If tenure is insecure—rights are uncertain, contested, or easily revoked—investors pull back, favor short‑term uses, or abandon improvements, and disputes over ownership can erupt, leading to fragmentation of claims and investment delays. The statement captures this link: secure tenure encourages long-term investment; insecurity discourages it and can trigger fragmentation or disputes. In contrast, blanket claims like “customary rights always provide secure tenure” miss context-specific governance and enforcement, and saying tenure has no effect contradicts the observed incentives.

Tenure security shapes the risk people face when investing in land. When rights are clear and protected, landholders expect to reap the returns from long‑term improvements, so they invest in soil restoration, irrigation, trees, and other capital-intensive upgrades, and lenders are willing to provide credit with land as collateral. If tenure is insecure—rights are uncertain, contested, or easily revoked—investors pull back, favor short‑term uses, or abandon improvements, and disputes over ownership can erupt, leading to fragmentation of claims and investment delays. The statement captures this link: secure tenure encourages long-term investment; insecurity discourages it and can trigger fragmentation or disputes. In contrast, blanket claims like “customary rights always provide secure tenure” miss context-specific governance and enforcement, and saying tenure has no effect contradicts the observed incentives.