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

  • John Pender
  • Marcel Fafchamps

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 Centre for the Study of African Economies, University of Oxford in its series CSAE Working Paper Series with number 2002-19.

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Date of creation: 2002
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Handle: RePEc:csa:wpaper:2002-19
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  1. Arcand, Jean-Louis & Ai, Chunrong & Ethier, Francois, 2007. "Moral hazard and Marshallian inefficiency: Evidence from Tunisia," Journal of Development Economics, Elsevier, vol. 83(2), pages 411-445, July.
  2. 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.
  3. 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.
  4. 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.
  5. 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.
  6. Hausman, Jerry, 2015. "Specification tests in econometrics," Applied Econometrics, Publishing House "SINERGIA PRESS", vol. 38(2), pages 112-134.
  7. D. Gale Johnson, 1950. "Resource Allocation under Share Contracts," Journal of Political Economy, University of Chicago Press, vol. 58, pages 111.
  8. Gavian, Sarah & Ehui, Simeon, 1999. "Measuring the production efficiency of alternative land tenure contracts in a mixed crop-livestock system in Ethiopia," Agricultural Economics of Agricultural Economists, International Association of Agricultural Economists, vol. 20(1), January.
  9. John Pender & Marcel Fafchamps, 2004. "Land Lease Markets and Agricultural Efficiency: Theory and Evidence from Ethiopia," Development and Comp Systems 0409021, EconWPA.
  10. Buchinsky, Moshe, 1994. "Changes in the U.S. Wage Structure 1963-1987: Application of Quantile Regression," Econometrica, Econometric Society, vol. 62(2), pages 405-58, March.
  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, vol. 30(4), pages 1965-2018, December.
  12. Eswaran, Mukesh & Kotwal, Ashok, 1985. "A Theory of Contractual Structure in Agriculture," American Economic Review, American Economic Association, vol. 75(3), pages 352-67, June.
  13. Laffont, Jean-Jacques & Matoussi, Mohamed Salah, 1995. "Moral Hazard, Financial Constraints and Sharecropping in El Oulja," Review of Economic Studies, Wiley Blackwell, vol. 62(3), pages 381-99, July.
  14. 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 79, International Food Policy Research Institute (IFPRI).
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