(Berry and Cline 1979, Carter 1984, Newell<sup>_et al._1997,Kutcherand Scandizzo1981,Burgess2001,</sup> Udry 1997), or have not been able to reject<sup>thehypothesisof constantreturnstoscaleinagricultural</sup> production (Lanjouw 1995, Feder and et al.<sup>1992,WanandCheng2001,Olinto1995).Labormarket</sup> imperfections would tend to transfer land from<sup>large producerswhowould havetorely on wage labor to</sup> "poor but efficient" small producers whose<sup>familylaborisnotfullyutilizedbycultivating their</sup> endowment. Differences across households in (unobservable)<sup>agriculturalabilitywould addan additional</sup> dimension but not alter the basic relationship.

Credit market imperfections can, however, offset<sup>or eveneliminate supervisioncost advantagesof family</sup> farmers. For example, if there is a need for up-front<sup>workingcapital(e.g.to acquire inputsin addition to</sup> land and labor) and credit markets do not function<sup>well so that access to capitaldepends on initialwealth,</sup> the optimal size of the operational land holding<sup>wouldvary systematicallywith the sizeof landowned</sup> even if land rental markets were to operate perfectly.<sup>This willgiverise to a positiverelationship between</sup> farm size and productivity, as is indeed confirmed<sup>by studiesfrom environmentswhere credit markets are</sup> important, e.g. Sudan (Kevane 1996) or in Malawi<sup>(Dorward1999).</sup> The relative importance of credit market imperfections<sup>varies, however,systematically betweenrental and</sup> sales markets. In rental markets, share contracts<sup>provide scope for overcomingcapital marketimperfections</sup> at relatively low cost (Basu 1992, Otsuka _et_<sup>_aL_1992,Ghatak andPandey2000,RayandSingh 2001)and</sup> the prevalence of share contracts in many<sup>regionsaroundtheworldprovidesevidencethatthe</sup> circumstances under which it is a second<sup>best solutionarerather common.In fact,systematicvariationof</sup> contract parameters depending on tenants'<sup>wealth providesempiricalconfirmationfor this(Quibriaand</sup> Rashid 1986, Shetty 1988, Shaban<sup>1991,LaffontandMatoussi1995).Many studiessupportthe</sup> hypothesis that share tenancy provides a second<sup>best arrangementwhich, inanygivenenvironment,is</sup> difficult to improve upon unless overall<sup>circumstanceschangesothat the operationof factorandcredit</sup> markets improves (Otsuka _et al._ 1992,<sup>Sharmaand Dreze1996,Sadoulet</sup><sup>_et al._1994,Lansink</sup><sup>_et al._2002,</sup> Quisumbing 2001, Otsuka 2002). We therefore<sup>hypothesizethat,whilecredit marketimperfectionswill</sup> affect the nature of contracts adopted, it<sup>will not underminethe tendencyof rental markets to transfer land</sup> to more productive producers.

Contrary to rental markets, sales market<sup>outcomeswillbeaffectedbycreditmarketimperfectionsand</sup> other factors in a number of ways. First,<sup>whereagricultural productionisvery risky and insuranceis not</sup> available, farmers may be forced to sell land<sup>off at low pricesin distresssales(Cain1981,Bidinger</sup><sup>_et al._</sup> 1991, Kranton and Swamy 1999). Covariance<sup>of land pricesmayimplythatthey willbeunableto</sup> replenish their asset portfolio later (Zimmerman<sup>andCarter1999,Binswanger</sup><sup>_et al._1995).Also,to the</sup> extent that land is valued as an asset, in<sup>additionto itsuse as an input into agricultural production,non-</sup> agricultural land demand, (tax and<sup>subsidy)policies,andmacro-economicconditionscanincreaseland</sup> _5_