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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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Find related papers by JEL classification:
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.:
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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. Fan, Shenggen & Fang, Cheng & Zhang, Xiaobo, 2001. "How agricultural research affects urban poverty in developing countries: the case of China," EPTD discussion papers 83, International Food Policy Research Institute (IFPRI). [Downloadable!]
    Other versions:
  2. 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!]
  3. Smale, Melinda & Hodgkin, T. & Zohrabian, Armineh & Day-Rubenstein, K., 2001. "The demand for crop genetic resources: international use of the U.S. National Plant Germplasm System," EPTD discussion papers 82, International Food Policy Research Institute (IFPRI). [Downloadable!]
    Other versions:
  4. Deininger, Klaus & Jin, Songqing & Adenew, Berhanu & Gebre-Selassie, Samuel & Nega, Berhanu, 2003. "Tenure security and land-related investment - evidence from Ethiopia," Policy Research Working Paper Series 2991, The World Bank. [Downloadable!]
    Other versions:
  5. Zhang, Xiaobo & Fan, Shenggen, 2001. "How productive is infrastructure?: new approach and evidence from rural India," EPTD discussion papers 84, International Food Policy Research Institute (IFPRI). [Downloadable!]
  6. Pender, John & Fafchamps, Marcel, 2002. "Land Lease Markets And Agricultural Efficiency: Theory And Evidence From Ethiopia," 2002 Annual meeting, July 28-31, Long Beach, CA 19796, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association). [Downloadable!]
    Other versions:
  7. Cai, Ximing & McKinney, Daene C. & Rosegrant, Mark W., 2001. "Sustainability analysis for irrigation water management: concepts, methodology, and application to the Aral Sea region," EPTD discussion papers 86, International Food Policy Research Institute (IFPRI). [Downloadable!]
  8. Benin, Samuel & Place, Frank & Nkonya, Ephraim & Pender, John, 2006. "Land Markets and Agricultural Land Use Efficiency and Sustainability: Evidence from East Africa," 2006 Annual Meeting, August 12-18, 2006, Queensland, Australia 25645, International Association of Agricultural Economists. [Downloadable!]
  9. 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!]
    Other versions:
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