This is a chapter in a book entitled "The Emergence of Land Markets in Africa Impacts on Poverty, Equity, and Efficiency" edited by Stein Holden, Keijiro Otsuka and Frank Place, 2009.
Efficient land markets (sales and rentals) are important for
sustainable land management and agricultural development. Land markets allow
land to be used by farmers who are more capable to earn the highest return from
it, particularly where markets for other scarce factors of production do not
function perfectly because of asymmetric information, transaction costs, and
incentive problems. The development of land sales markets in developing
countries is restricted by factors such as land quality, lack of land titles,
undeveloped credit markets, inability of poorer farmers to pay for the
collateral value of the land, and/or various policy distortions. In the absence
of land sales markets (as is the case in Ethiopia), land rental markets could
promote improved short-term agricultural efficiency. In such cases land lease
contracts are important determinants of the short-term efficiency impacts on
land management practices.
This chapter aims at investigating these relationships in
the context of the northern Ethiopian highlands, where the sustainability of
land management is a serious concern and where it is possible the short-term
nature of land rental contracts undermines incentives to invest in and manage
rented land in a sustainable way. Using community, household, and plot level
data from the highland areas of Tigray and Amhara regions, we examine the
impacts of land rental on land management practices. In Ethiopia, land rental
markets are very active although allocative efficiency is low. Rented land is
transferred to more efficient producers, but whether they have sufficiently
strong incentives to conserve the land they rent in is the remaining issue that
this chapter tried to resolve empirically.
