Land markets play a limited role insubsistence economies with low skill-intensity ofagricultural cultivation, equally distributed landendowments and little movement out of agriculture to jointhe non-farm economy. But, as the economy starts todiversify, the scope for efficiency-enhancing land transfersbeyond immediate kin and for longer than just one seasonassumes significantly greater importance. Lease markets cancontribute to the diversification of the economic base inrural areas by allowing those with limited farming skills totake up non-agricultural employment or to migratetemporarily without losing their links to rural areas, andthose with comparative advantage in agriculture to increasethe size of the land they farm. Land sales, on the otherhand, may allow households who want to move into thenon-agricultural economy to mobilize the capital that willhelp them to exploit profitable economic opportunities.Programs aiming to provide higher level of tenure securityand better land information systems have often beenjustified by noting their impact on lowering transactioncosts in land markets. Registered land rights make it easierto identify rightful land owners, negotiate and enforcecontracts, and reduce the risk of land owners not being ableto recover land that they had rented out. This could in turnincrease the number of efficiency-enhancing land markettransactions; facilitate credit access via the use of landas collateral; and foster structural change andtransformation. At the same time, in settings where marketimperfections are prevalent, reducing transaction costs inone market will not necessarily improve outcomes across the board.
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