Land Rental Markets: Experimental Evidence from Kenya

Abstract

Do land market frictions cause misallocation in agriculture? In a field experiment in Western Kenya, we randomly subsidize owners to rent out land. Transferring cultivation rights to renters increases output and value added on the plots, consistent with imperfect land markets and misallocation, and induced rentals persist after the subsidy ends. Additional analysis provides insights on the magnitude and nature of land frictions—which include search, risks, and learning—and on the sources of gains from trade—which include differences between owners and renters in crop choices, productivity, and financial market constraints, but not in labor constraints.