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Land Lease Markets and Agricultural Efficiency: Theory and Evidence from Ethiopia

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Author Info
John Pender (International Food Policy Research Institute, Washington D.C.)
Marcel Fafchamps (Centre for the Study of African Economies)

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Abstract

In this paper, we develop a theoretical model of land leasing that includes transaction costs, risk pooling motives and non-tradable productive inputs, and investigate the empirical implications of land contracts using data collected from four villages in Ethiopia. We show that sharecropping is the dominant contract if transaction costs are negligible, but that a rental contract may arise if transaction costs decrease with increasing the tenant’s share of output. When this is the case, the theory predicts that area operated by tenants will be an increasing function of their land endowment and that fixed rental contracts will be more likely in situations where transaction costs are higher. We find empirical support for these predictions in the villages studied. We also find that input of labor per hectare is about 25% lower on sharecropped than on other land tenure types, but that the differences in total value of inputs, outputs and profits per hectare are statistically insignificant and relatively small in magnitude. These results support the Marshallian argument that sharecropping reduces labor effort, but also support the “New School” perspective since the magnitude of the inefficiency is relatively small. A bigger source of inefficiency (and inequity) in the study villages appears to be the limited lease market for oxen services, together with credit constraints that limit the ability of land and oxen poor households to purchase oxen.

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Paper provided by EconWPA in its series Development and Comp Systems with number 0409021.

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Length: 52 pages
Date of creation: 22 Sep 2004
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Handle: RePEc:wpa:wuwpdc:0409021

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Keywords: land lease markets land tenure sharecropping agricultural efficiency

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O - Economic Development, Technological Change, and Growth
P - Economic Systems

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Gavian, Sarah & Ehui, Simeon, 1999. "Measuring the production efficiency of alternative land tenure contracts in a mixed crop-livestock system in Ethiopia," Agricultural Economics, Blackwell, vol. 20(1), pages 37-49, January. [Downloadable!] (restricted)
  2. Alston, Julian M. & Craig, Barbara J. & Pardey, Philip G., 1998. "Dynamics in the creation and depreciation of knowledge, and the returns to research:," EPTD discussion papers 35, International Food Policy Research Institute (IFPRI). [Downloadable!]
  3. Rosegrant, Mark W. & Evenson, Robert E., 1995. "Total factor productivity and sources of long-term growth in Indian agriculture:," EPTD discussion papers 7, International Food Policy Research Institute (IFPRI). [Downloadable!]
  4. Meinzen-Dick, Ruth Suseela & Sullins, Martha, 1994. "Water markets in Pakistan: participation and productivity," EPTD discussion papers 4, International Food Policy Research Institute (IFPRI). [Downloadable!]
  5. Meinzen-Dick, Ruth & Raju, K. V. & Gulati, Ashok, 2002. "What Affects Organization and Collective Action for Managing Resources? Evidence from Canal Irrigation Systems in India," World Development, Elsevier, vol. 30(4), pages 649-666, April. [Downloadable!] (restricted)
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  6. Fan, Shenggen & Hazell, P. B. R., 1999. "Are returns to public investment lower in less-favored rural areas?: an empirical analysis of India," EPTD discussion papers 43, International Food Policy Research Institute (IFPRI). [Downloadable!]
  7. Al, C. & Arcand, J.L. & Ethier, F., 1996. "Moral Hazard and Marshallian Inefficiency: Evidence from Tunisia," Cahiers de recherche 9605, Universite de Montreal, Departement de sciences economiques. [Downloadable!]
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  8. Shaban, Radwan Ali, 1987. "Testing between Competing Models of Sharecropping," Journal of Political Economy, University of Chicago Press, vol. 95(5), pages 893-920, October. [Downloadable!] (restricted)
  9. Sadoulet, Elisabeth & Fukui, Seiichi & Janvry, Alan de, 1994. "Efficient share tenancy contracts under risk: The case of two rice-growing villages in Thailand," Journal of Development Economics, Elsevier, vol. 45(2), pages 225-243, December. [Downloadable!] (restricted)
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  11. Zhang, Xiaobo & Fan, Shenggen, 2000. "Public investment and regional inequality in rural China:," EPTD discussion papers 71, International Food Policy Research Institute (IFPRI). [Downloadable!]
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  12. Hausman, Jerry A, 1978. "Specification Tests in Econometrics," Econometrica, Econometric Society, vol. 46(6), pages 1251-71, November. [Downloadable!] (restricted)
  13. Peter Hazell & Chakravorty, Ujjayant & Dixon, John & Celis, Rafael, 2001. "Monitoring systems for managing natural resources: economics, indicators and environmental externalities in a Costa Rican watershed," EPTD discussion papers 73, International Food Policy Research Institute (IFPRI). [Downloadable!]
  14. D. Gale Johnson, 1950. "Resource Allocation under Share Contracts," Journal of Political Economy, University of Chicago Press, vol. 58, pages 111. [Downloadable!] (restricted)
  15. Alston, Julian M. & Venner, Raymond J., 2000. "The effects of the U.S. Plant Variety Protection Act on wheat genetic improvement:," EPTD discussion papers 62, International Food Policy Research Institute (IFPRI). [Downloadable!]
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  16. Rosegrant, Mark W. & Perez, Nicostrato D., 1997. "Water resources development in Africa: a review and synthesis of issues, potentials, and strategies for the future," EPTD discussion papers 28, International Food Policy Research Institute (IFPRI). [Downloadable!]
  17. Cai, Ximing & Ringler, Claudia & Rosegrant, Mark W., 2001. "Does efficient water management matter?: physical and economic efficiency of water use in the river basin," EPTD discussion papers 72, International Food Policy Research Institute (IFPRI). [Downloadable!]
  18. Fan, Shenggen, 1999. "Technological change, technical and allocative efficiency in Chinese agriculture: the case of rice production in Jiangsu," EPTD discussion papers 39, International Food Policy Research Institute (IFPRI). [Downloadable!]
  19. Zhang, Xiaobo & Li, Guo, 2001. "Does Guanxi matter to nonfarm employment?:," EPTD discussion papers 74, International Food Policy Research Institute (IFPRI). [Downloadable!]
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  20. Otsuka, Keijiro & Hayami, Yujiro, 1988. "Theories of Share Tenancy: A Critical Survey," Economic Development and Cultural Change, University of Chicago Press, vol. 37(1), pages 31-68, October.
  21. Rosegrant, Mark W. & Ringler, Claudia, 1999. "Impact on food security and rural development of reallocating water from agriculture:," EPTD discussion papers 47, International Food Policy Research Institute (IFPRI). [Downloadable!]
Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Jacoby, Hanan G. & Mansuri, Ghazala, 2006. "Incomplete contracts and investment : a study of land tenancy in Pakistan," Policy Research Working Paper Series 3826, The World Bank. [Downloadable!]
  2. Holden, Stein & Yohannes, Hailu, 2001. "Land redistribution, tenure insecurity, and intensity of production: a study of farm households in southern Ethiopia," CAPRi Working Papers 21, International Food Policy Research Institute (IFPRI). [Downloadable!]
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