contradictory provisions.<sup>3</sup> These factors are less likely to be an impediment to short-term transfers of annual cropland which, in many rural economies, is based on oral agreements. But transfer of land that is under orchards or that requires investment to become fully productive will require longer-term and ideally standardized contracts with a higher level of formality.

Albania‟s broader policy environment is also inimical to well-functioning land markets. A failure to resolve restitution issues, together with provisions for extraordinarily high compensation imply continued fear about surfacing of claims by pre-1945 owners. This has become an issue involving EU institutions (Frangakis _et al._ 2008). Owners might leave land fallow hoping to demonstrate low productive potential, thus signaling to potential claimants that it will not be worth the effort of launching a claim for it.

We also find clear differences in _modus operandi_ between rentals and sales markets; while the former contribute to structural change by transferring land to younger and more productive farmers, the latter are less liquid and fail to move land to those who use it most efficiently. Capital market imperfections and speculative land transfers, where benefits are expected to arise not from productive use but from future appreciation of land values, could underlie such behavior.

Taken together, our results suggest that land fragmentation has far-reaching economic consequences. Yet, most of the effects seem to arise not because a large number of fragments are too small to be viable economically but because, as a result of defects in the land tenure regime, productive land is left idle. If owners abandon productive land because they do not consider cultivation to be worthwhile or because costs of transferring land to more productive users, even on a temporary basis through rental, are perceived to outweigh the gains from doing so, measures to improve functioning of land markets by reducing the associated transaction costs could result in large efficiency gains. Such measures would include making registration easier and less costly, improving the institutional setup and the level of tenure security, helping to adopt standardized contracts, narrowing the scope for restitution, and limiting the tendency towards speculative land acquisition through a land tax, possibly together with effective ways of taxing capital gains arising from land appreciation.

With an ageing rural population and secular movement of workers out of the agricultural sector, mechanisms to ensure that land owned by those moving out of agriculture continues to be used effectively will be critical to maintain the productive potential of the country‟s rural economy, prevent emergence of a structure that is entirely dependent on remittances and ensure availability of opportunities for local entrepreneurs well beyond the agricultural sector. Finding ways to improve land market functioning will be essential for Albania‟s ability to effectively address the challenges of structural transformation and

> 3 A recent World Bank study notes that the Albania‟s immoveable property rights and hypothec registries (IPRS) is “characterized by serious flaws in terms of design, operation, legal basis, and public outreach” (World Bank 2006, 67) which leads to a level of performance well below that of registries in comparable Eastern European countries, low levels of customer satisfaction, and a generally low image.

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