or the partnering tenant, shows that tenants‟ productivity is higher than that of landlords by between 17 and 26 percentage points suggesting that land rental could significantly enhance productivity. Still, this is counteracted by contractual arrangements; in fact we cannot reject the hypothesis that, despite tenants‟ productivity advantage, productivity on leased plots is no different from those self-cultivated by the landlord. As this result is unlikely to be driven by unobserved land quality, use of sharecropping rather than fixed rental arrangements implies that rental markets fail to realize their productive potential. Predominantly female landlords will draw little, if any benefits from having their land sharecropped as compared to cultivating it themselves. Policies such as insurance that would allow adoption of fixed rent contracts could thus increase welfare by both tenants and landlords.

The paper is structured as follows. Section two introduces the topic and uses descriptive statistics from household- and plot-level data to illustrate the setting and highlight evidence on working of rental markets from data on transaction partners. Section three discusses literature on the efficiency of sharecropping and introduces our analytical framework that extends the standard approach to allow for arrangements that might allow partners to reduce inefficiency of certain contractual arrangements and to assess potential and actual productivity differential between tenants and landlords. Section four presents results from the econometric analysis. Section five concludes by discussing potential policy implications.

# **2. Background and descriptive statistics**

Our data come from a rural environment with limited non-agricultural labor markets and high levels of land rental market activity. High risk, social norms regarding females‟ roles, and large differences in wealth and endowments of critical factors, in particular oxen, imply that land is mainly transferred from poor and often female headed landlords to relatively more affluent tenants with draught power. Contrary to what is observed elsewhere, rentals thus lead to greater concentration of operational holdings. Virtually all rentals involve sharecropping rather than fixed rental contracts. Descriptive results suggest that intensity of input use is lower on sharecropped than on owned plots.

# **2.1 Household characteristics**

Our data are from the fourth round of a longitudinal survey in the Amhara region of Ethiopia‟s highlands conducted by the Ethiopian Development Research Institute jointly with the World Bank and Gothenburg University. Details of earlier rounds are described elsewhere (Deininger _et al._ 2008). A unique feature of the data is that, for participants on either side of the land market, rental partners from the same village were included in the sample and were administered essentially the same questionnaire.<sup>1</sup> In light of high

> 1 In the case of multiple partners, all partners within the village were to be interviewed. In East Gojjam, an unexpectedly large number of rental transactions implied that the partner questionnaire was administered to a randomly selected partner while a shorter questionnaire (without plot level production) was administered to the remaining partners within the village.

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