Recognition of the potentially deleterious implications of inequality in opportunity originating in a skewed asset distribution has spawned considerable interest in land reforms. However, little attention has been devoted to the fact that, in the longer-term, the measures used to implement land reforms, especially rental restrictions, could negatively affect productivity. Use of state level data on rental restrictions, together with a nationally representative survey from India suggests that, contrary to original intentions, rental restrictions negatively affect productivity and equity by reducing scope for efficiency-enhancing rental transactions that benefit poor producers. Simulations suggest that, by doubling the number of producers with access to land through rental, from about 15 million currently, liberalization of rental markets could have far-reaching impacts.

Recognition of the potentially deleterious implications of inequality in opportunity originating in a skewed asset distribution has spawned considerable interest in land reforms. However, little attention has been devoted to the fact that, in the longer-term, the measures used to implement land reforms, especially rental restrictions, could negatively affect productivity. Use of state level data on rental restrictions, together with a nationally representative survey from India suggests that, contrary to original intentions, rental restrictions negatively affect productivity and equity by reducing scope for efficiency-enhancing rental transactions that benefit poor producers. Simulations suggest that, by doubling the number of producers with access to land through rental, from about 15 million currently, liberalization of rental markets could have far-reaching impacts.

Recognition of the potentially deleterious implications of inequality in opportunity originating in a skewed asset distribution has spawned considerable interest in land reforms. However, little attention has been devoted to fact that, in the longer term, the measures used to implement land reforms could negatively affect productivity. Use of state level data on rental restrictions, together with a nationally representative survey from India, suggests that, contrary to original intentions, rental restrictions negatively affect productivity and equity. The restrictions reduce the scope for efficiency-enhancing rental transactions that benefit poor producers. Simulations suggest that, by doubling the number of producers with access to land through rental, from about 15 million currently, liberalization of rental markets could have far-reaching impacts.

The emergence of rural land rental markets in Sub-Saharan Africa is recognized as a key component of the region’s ongoing economic transformation. However, the evidence base on land market participation relies on survey-derived measures, which do not always cohere when compared and triangulated, suggesting the possibility of non-trivial measurement error. We report the results of a priming and list experiments designed to shed light on a persistent mystery in rural household survey data from Africa: why there are so many fewer self-reported landlords (renters-out) than tenants (renters-in)? Our design addresses two hypotheses using experimental data from Ethiopia. First, rented-out and rented-in land may be systematically underreported because enumerators and respondents are typically primed to emphasize parcels that are actively managed/cultivated by the household. Second, rented or sharecropped-out land may be systematically underreported because of respondents’ reluctance to acknowledge an activity for which public disclosure may have negative repercussions. We address the first hypothesis with a priming experiment by exposing a random subset of respondents to a nudge that explicitly reminded them to fully account for all land, including rented/sharecropped-in and rented/sharecropped-out. We address the second hypothesis with a double-list experiment, designed to elicit true rates of land renting and sharecropping-out. We find that nudging induces about 4 percentage points increase (or 13% in relative terms) in the share of households participating in renting in or sharecropping-in practices but has negligible effects on reported rates of renting and sharecropping-out. Interestingly, our list experiment indicates much higher revealed rates of renting-out (14-15%) than is reflected in the nominal parcel-roster responses (3%). The magnitude of the latter finding fully explains the apparent difference in renting in versus renting-out rates derived from the regular parcel roster responses. These results indicate that efforts to document land market participation rate and associated impacts must overcome large systematic reporting biases.

Abstract: Although a large theoretical literature discusses the possible inefficiency of sharecropping contracts, the empirical evidence on this phenomenon has been ambiguous at best. Household-level fixed-effect estimates from about 8,500 plots operated by households that own and sharecrop land in the Ethiopian highlands provide support for the hypothesis of Marshallian inefficiency. At the same time, a factor adjustment model suggests that the extent to which rental markets allow households to attain their desired operational holding size is extremely limited. Our analysis points towards factor market imperfections (no rental for oxen), lack of alternative employment opportunities, and tenure insecurity as possible reasons underlying such behavior, suggesting that, rather than worrying almost exclusively about Marshallian inefficiency, it is equally warranted to give due attention to the policy framework within which land rental markets operate.

This book is the first systematic attempt to address emerging land markets and their implications for poverty, equity, and efficiency across a number of African countries. The high incidence of poverty and the need for increased agricultural productivity remain acute in rural areas of sub-Saharan Africa, where a lack of secure land rights and a growing scarcity of land relative to the size of the population are becoming increasingly critical issues. Indeed, land issues in the region are high on the international policy agenda. Yet our knowledge about land tenure security and other rural factor markets (such as labor, oxen, manure, purchased inputs, and credit) is far from adequate to formulate sensible policies. The case studies in the book show that, while land markets and especially informal markets have been rapidly emerging in densely populated parts of Africa - and have generally been to the benefit of the poor--their functions remain imperfect. This is due to policy-induced tenure insecurity and the fragmentation of agricultural land. Applying rigorous quantitative analyses, the book provides a basis for taking into account the role of land markets in national land policies. All too often, the authors argue, land policies have been extreme, either prohibiting all land transactions or giving unrestricted freehold rights to a small elite at the expense of the poor. From the long experience in Asia, it is known that such policies are detrimental to both production efficiency and equity of land use. The authors argue that future policies in Africa should work with the markets. Regulations should be imposed only with careful testing that they are having the intended effects. The Emergence of Land Markets in Africa is a resource for teaching in developed and developing countries, as it provides both comprehensive reviews of the literature and detailed case studies. It is intended to facilitate the dialogue between researchers and policymakers, as well as inspire researchers to go further in their investigations and build an even stronger basis for good policies. The Emergence of Land Markets in Africa is the first publication in the new Environment for Development (EfD) book series. EfD books focus on research and applications in environmental and natural resource economics as they are relevant to poverty reduction and environmental problems in developing countries. The EfD book series is part of the EfD initiative. (www.environmentfordevelopment.org)