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

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  • John Pender

    (International Food Policy Research Institute, Washington D.C.)

  • Marcel Fafchamps

    (Centre for the Study of African Economies)

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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Bibliographic Info

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
Date of revision:
Handle: RePEc:wpa:wuwpdc:0409021

Note: Type of Document - pdf; pages: 52
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Web page: http://128.118.178.162

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Keywords: land lease markets; land tenure; sharecropping; agricultural efficiency;

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References

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  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: The Journal of the International Association of Agricultural Economists, International Association of Agricultural Economists, International Association of Agricultural Economists, vol. 20(1), January.
  2. Al, C. & Arcand, J.L. & Ethier, F., 1996. "Moral Hazard and Marshallian Inefficiency: Evidence from Tunisia," Cahiers de recherche, Universite de Montreal, Departement de sciences economiques 9605, Universite de Montreal, Departement de sciences economiques.
  3. Buchinsky, Moshe, 1994. "Changes in the U.S. Wage Structure 1963-1987: Application of Quantile Regression," Econometrica, Econometric Society, Econometric Society, vol. 62(2), pages 405-58, March.
  4. D. Gale Johnson, 1950. "Resource Allocation under Share Contracts," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 58, pages 111.
  5. Hausman, Jerry A, 1978. "Specification Tests in Econometrics," Econometrica, Econometric Society, Econometric Society, vol. 46(6), pages 1251-71, November.
  6. Laffont, Jean-Jacques & Matoussi, Mohamed Salah., 1988. "Moral Hazard, Financial Constraints and Sharecropping in El Oulja," Working Papers, California Institute of Technology, Division of the Humanities and Social Sciences 667, California Institute of Technology, Division of the Humanities and Social Sciences.
  7. Nottenburg, Carol & Pardey, Philip G. & Wright, Brian D., 2001. "Accessing other people's technology: do non-profit agencies need it? how to obtain it?," EPTD discussion papers, International Food Policy Research Institute (IFPRI) 79, International Food Policy Research Institute (IFPRI).
  8. Shaban, Radwan Ali, 1987. "Testing between Competing Models of Sharecropping," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 95(5), pages 893-920, October.
  9. Pender, John L. & Fafchamps, Marcel, 2002. "Land Lease Markets And Agricultural Efficiency: Theory And Evidence From Ethiopia," 2002 Annual meeting, July 28-31, Long Beach, CA, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association) 19796, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
  10. Otsuka, Keijiro & Hayami, Yujiro, 1988. "Theories of Share Tenancy: A Critical Survey," Economic Development and Cultural Change, University of Chicago Press, University of Chicago Press, vol. 37(1), pages 31-68, October.
  11. Otsuka, Keijiro & Chuma, Hiroyuki & Hayami, Yujiro, 1992. "Land and Labor Contracts in Agrarian Economies: Theories and Facts," Journal of Economic Literature, American Economic Association, American Economic Association, vol. 30(4), pages 1965-2018, December.
  12. 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, Blackwell, vol. 20(1), pages 37-49, January.
  13. 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, Elsevier, vol. 45(2), pages 225-243, December.
  14. Eswaran, Mukesh & Kotwal, Ashok, 1985. "A Theory of Contractual Structure in Agriculture," American Economic Review, American Economic Association, American Economic Association, vol. 75(3), pages 352-67, June.
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Citations

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Cited by:
  1. Benin, Samuel & Place, Frank & Nkonya, Ephraim M. & Pender, John L., 2006. "Land Markets and Agricultural Land Use Efficiency and Sustainability: Evidence from East Africa," 2006 Annual Meeting, August 12-18, 2006, Queensland, Australia, International Association of Agricultural Economists 25645, International Association of Agricultural Economists.
  2. Marcel Fafchamps & John Pender, 2000. "Land Lease Markets and Agricultural Efficiency: Theory and Evidence from Ethiopia," Economics Series Working Papers, University of Oxford, Department of Economics WPS/2002-19, University of Oxford, Department of Economics.
  3. Liverpool, Lenis Saweda O. & Winter-Nelson, Alex, 2010. "Asset versus consumption poverty and poverty dynamics in the presence of multiple equilibria in rural Ethiopia," IFPRI discussion papers, International Food Policy Research Institute (IFPRI) 971, International Food Policy Research Institute (IFPRI).
  4. World Bank, 2001. "Mexico : Land Policy--A Decade after the Ejido Reform," World Bank Other Operational Studies 15460, The World Bank.
  5. Stein Holden & Hailu Yohannes, 2002. "Land Redistribution, Tenure Insecurity, and Intensity of Production: A Study of Farm Households in Southern Ethiopia," Land Economics, University of Wisconsin Press, vol. 78(4), pages 573-590.
  6. Feng, Shuyi & Heerink, Nico & Ruben, Ruerd & Qu, Futian, 2010. "Land rental market, off-farm employment and agricultural production in Southeast China: A plot-level case study," China Economic Review, Elsevier, Elsevier, vol. 21(4), pages 598-606, December.
  7. Gruère, Guillaume P., 2006. "An analysis of trade related international regulations of genetically modified food and their effects on developing countries:," EPTD discussion papers, International Food Policy Research Institute (IFPRI) 147, International Food Policy Research Institute (IFPRI).
  8. Ndoye Niane, Aifa Fatimata & Burger, Kees & Bulte, Erwin H., 2010. "Horticultural Households Profit Optimization and the Efficiency of Labour Contract Choice," 2010 AAAE Third Conference/AEASA 48th Conference, September 19-23, 2010, Cape Town, South Africa, African Association of Agricultural Economists (AAAE);Agricultural Economics Association of South Afri 95776, African Association of Agricultural Economists (AAAE);Agricultural Economics Association of South Africa (AEASA).
  9. 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.
  10. Paul J. Block & Kenneth Strzepek & Mark W. Rosegrant & Xinshen Diao, 2008. "Impacts of considering climate variability on investment decisions in Ethiopia," Agricultural Economics, International Association of Agricultural Economists, International Association of Agricultural Economists, vol. 39(2), pages 171-181, 09.
  11. Deininger, Klaus & Jin, Songqing, 2006. "Tenure security and land-related investment: Evidence from Ethiopia," European Economic Review, Elsevier, Elsevier, vol. 50(5), pages 1245-1277, July.

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