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

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  • John Pender
  • Marcel Fafchamps

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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  • John Pender & Marcel Fafchamps, 2002. "Land Lease Markets and Agricultural Efficiency: Theory and Evidence from Ethiopia," CSAE Working Paper Series 2002-19, Centre for the Study of African Economies, University of Oxford.
  • Handle: RePEc:csa:wpaper:2002-19
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    Cited by:

    1. 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, vol. 39(2), pages 171-181, September.
    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.
    3. Pender, John L. & Fafchamps, Marcel, 2001. "Land lease markets and agricultural efficiency: theory and evidence from Ethiopia," EPTD discussion papers 81, International Food Policy Research Institute (IFPRI).
    4. Deininger, Klaus & Jin, Songqing, 2006. "Tenure security and land-related investment: Evidence from Ethiopia," European Economic Review, Elsevier, vol. 50(5), pages 1245-1277, July.
    5. Jabbar, Mohammad & Ayele, Gezahyegn, 2011. "Land degradation in the Oromiya highlands in Ethiopia," Research Reports 208727, International Livestock Research Institute.
    6. 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 95776, African Association of Agricultural Economists (AAAE).
    7. Menale Kassie & Stein Holden, 2007. "Sharecropping efficiency in Ethiopia: threats of eviction and kinship," Agricultural Economics, International Association of Agricultural Economists, vol. 37(2‐3), pages 179-188, September.
    8. 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 25645, International Association of Agricultural Economists.
    9. 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.
    10. Muraoka, Rie & Jin, Songqing & Jayne, T.S., 2018. "Land access, land rental and food security: Evidence from Kenya," Land Use Policy, Elsevier, vol. 70(C), pages 611-622.
    11. Takada, Jun & Shuto, Hisato, 2023. "Causal linkages between land reform and factor demand under tenure insecurity: Evidence from Amhara Region, Ethiopia," Land Use Policy, Elsevier, vol. 128(C).
    12. Jacky MATHONNAT & Jean-François BRUN & Martine AUDIBERT & Marie-Claire HENRY, 2006. "Malaria, Production and Income of the Producers of Coffee and Cocoa: an Analysis from Survey Data in Côte d’Ivoire. Malaria, coffee and cocoa production and income," Working Papers 200631, CERDI.
    13. Gruère, Guillaume P., 2006. "An analysis of trade related international regulations of genetically modified food and their effects on developing countries:," EPTD discussion papers 147, International Food Policy Research Institute (IFPRI).
    14. 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, vol. 21(4), pages 598-606, December.
    15. 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 971, International Food Policy Research Institute (IFPRI).
    16. Wisdom Akpalu & Mintewab Bezabih, 2015. "Tenure Insecurity, Climate Variability and Renting out Decisions among Female Small-Holder Farmers in Ethiopia," Sustainability, MDPI, vol. 7(6), pages 1-16, June.
    17. Tefera, B. & Ayele, Gezahegn & Atnafe, Y. & Jabbar, Mohammad A. & Dubale, P., 2002. "Nature and causes of land degradation in Oromiya region, Ethiopia – a review," Research Reports 182886, International Livestock Research Institute.

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    More about this item

    Keywords

    land lease markets; land tenure; sharecropping; agricultural efficiency;
    All these keywords.

    JEL classification:

    • O - Economic Development, Innovation, Technological Change, and Growth
    • P - Political Economy and Comparative Economic Systems

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