ABSTRACT
Land is a crucial resource in agrarian economies and, thus, efficient land markets (including 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 (Binswanger and Rosenzweig 1986; Chapters 1 and 2). Unfortunately, land sales markets are also usually poorly developed in developing countries due to asymmetric information about 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 (Binswanger and Rosenzweig 1986; Binswanger et al. 1993). Where land sales markets do not function well, or are prohibited—as in Ethiopia—the effective functioning of land rental markets is particularly critical for agricultural development.
