LAND TENURE SYSTEMS AND HOUSEHOLD
WELFARE
Harriet Mugera
World Bank, Washington D.C. United States
Introduction
 Land and land tenure systems are central in promoting rural livelihoods in
developing countries as access to land and security of tenure are the main means
through which food security and sustainable development can be achieved.
 Given this important role land plays, food security and poverty reduction may not
be achieved unless land tenure issues such as access to land, security of tenure
and the capacity to use land productively and in a sustainable manner – are fully
addressed.
 Inappropriately addressing land issues may constitute a serious constraint on
economic and social development. On the one hand, insecure land tenure and
dysfunctional land institutions discourage private investment and overall
economic growth. On the other hand, skewed land ownership distribution and
discrimination according to gender or ethnicity limit economic opportunities for
disadvantaged groups and provide fertile conditions for social conflict - which
often erupt in violence.
 In Africa, land remains crucial for poverty reduction as most rural households rely
on it for the survival of present and future generations because the livelihoods of
over 70% of the population in Africa are mainly linked to land and natural
resources exploitation.
 In order to address land issues and thus formulate appropriate food security and
poverty reduction policies, it is necessary to understand the links between access
to land and access to other sources of income and capital. In particular, it is
crucial to have a better understanding of the structures of agrarian economies as
they relate to rural poverty and welfare.
Introduction
 Agricultural tenancy has attracted a lot of attention. In particular,
the agency-principal contract relations has been at the center of
debate.
 Despite the growth of interest little convergence has emerged on
the opinions of the tenancy contracts.
 The main challenge facing agricultural tenancy is the ability to
explain the existence of sharecropping and the other forms of
land tenure like fixed rental and fixed wage contracts.
 Some of explanations that have been offered for the existence of
different types of tenure contracts:
(i) the existence of a tradeoff between risk sharing and transaction costs;
(ii) screening of workers that poses different qualities;
(iii) imperfections for inputs market.
Objective of paper
 To explore land tenure systems, the nature of these
systems and the role they play in the defining or affecting
the welfare of individuals particularly in developing
countries.
 To explore the role of asymmetric information in land
tenure contracts.
 The first part of the paper introduces land tenure
contracts and the Marshallian inefficiency dilemma.
 The second part examines the role of risk and asymmetric
information and how these affect land tenure contracts
and in particular sharecropping contracts.
 Last part paper aims at improve the current understanding
of the linkages between land tenure systems and
household welfare.
Land Tenure Contracts
There are three main forms main of land tenure contracts:
1. Pure rental contract: the tenant pays the landlord a fixed rent
(either in cash or in kind) and the tenant keeps all the output
produced. 𝑋 = 𝑅 where R is a fixed rental and 𝑋 what the landlord
receives;
2. Contract farming: the landlord pays the tenant a wage and he in
return, keeps all of the output produced by the tenant. The tenant
receives a fixed payment (“wage”) W. 𝑋 = 𝑌 − 𝑊
3. Sharecropping: A landowner leases land to a tenant and in return,
he gets a percentage of the output yield produced by the tenant.
Variations on the share cropping contract include different
proportions of division of the output depending on whether the
input costs are also shared between the landlord and the tenant,
and/or are tied to some form of credit arrangements. The tenant
gives a fixed percentage β of the output Y to the landlord and so
the landlord receives: 𝑋 = 𝛽𝑌
Land Tenure and Contracts
 Critical assumption in the choice of contractual form in the market
for tenancies is the ability of the landlord to monitor the actions of
the tenant.
 Under the assumption that the costs of monitoring the tenant's
activities are high, theory predicts that sharecropping will result in an
inefficiently low amount of variable inputs applied to the rented land
by the tenant, compared to the amount of variable inputs employed
on owned land or on plots leased under a fixed rent contract.
 If the landlord is able to effectively monitor the tenant's activities,
then the efficient amount of variable inputs per unit area can be
stipulated in the contract, and there will be no incentive problems
nor inefficiencies compared to a fixed rent contract.
Land Tenure and Contracts
Given the above assumptions, three possible solutions can be derived:
 A fixed wage (contract farming): the landlord is in a position to manage
and supervise and thus he decides to hire wage laborers. This option
can be identified as the extreme left of the horizontal axis where the
efficiency of the land lord to manage is at maximum (i.e., close to 1);
 Fixed rental: the tenant is able to manage and supervise production and
thus he pays the landlord a fixed rental payment. This position is
represented by the highest point on the vertical axis where the
efficiency of the tenant to supervise inputs and production is at
maximum (i.e., close to 1);
 Sharecropping: this is the “intermediate” position where the landlord is
able to manage and the tenant supervises, and thus the output
produced is divided by the two parties. This position gives the best
outcome if the landlord cannot efficiently supervise inputs and the
tenant cannot make efficient management decisions (i.e., close to 0.5
on both axis).
Land Tenure and Contracts-Efficiency of tenants and
landlords
Share cropping and Marshallian inefficiency
 The essence his critique is that sharecropping is an inefficient system.
 His analytical framework enabled him to identify the moral hazard
problem associated with share cropping tenancy.
 The costs of supervision of the tenant by the landlord is high. The
tenant will provide labour only up to the point where the value of his
marginal product of labour equals the opportunity cost of choosing the
sharecropping contract. Given that the tenant receives only a fraction of
the value of the marginal product of labour, and that the marginal
product of labour is assumed to be decreasing, the tenant will tend to
provided less labour with respect to a fixed rent contract.
 In the fixed rental contract, the tenant has the incentive to maximize
the surplus where he keeps the entire output and pays an agreed
amount of rent to the landlord. The landlord, who has the bargaining
power, can then extract the entire additional surplus by determining the
rent.
Share cropping and Marshallian inefficiency
 The moral hazard problem associated with sharecropping— lack of
supervision of labor by the landlord which leads to under provision of
labor by the tenant generating the “Marshallian inefficiency.” Apart
from being inefficient, sharecropping is also apparently suboptimal for
the landlord.
 The use of contracts other than fixed-rent contract distorts the tenant’s
input supply away from the efficient level. In particular, sharecropping
leads to undersupply of the tenants inputs. Sharecropping results in
poor incentives to the farmer (tenant).
 The Marshallian “dilemma” of sharecropping: If fixed rent system is
superior to sharecropping arrangement, both from a social efficiency
perspective and from the landlord’s individual rationality, why then do
we still observe the sharecropping behaviour in the real world?
 Different authors have tried to give an explanation of this phenomenon.
In particular, some authors have argued that sharecropping can be
justified by the trade-off between risk-sharing and incentive provision.
Risk and the role of information - Contract theory
 Centered on the principal-agent model this model analyzes the
strategic interactions between two economic agents and it
assumes that some asymmetry in terms of information exists
between them.
 The principal is assumed to move first and by maximizing his
expected utility, decides the type of contract to offer to the agent.
 In order to achieve his goal, the principal anticipates the reaction
of the agent and thus chooses the contract accordingly, taking into
consideration the incentives of the agent that are necessary for the
acceptance of the contract.
 The presence of incomplete and asymmetric information among
agents remains a crucial issue since it not only influences how
markets are structured, but it affects the nature of economic
transactions and the contractual arrangements among individuals.
Risk and the role of information - Contract theory
The two main types of informational problems are:
i. Hidden action (moral hazard): where the payoff of a transaction to
one party depends on some action taken by the other party. This
action is not observable and it is difficult to prove that the party did
or did not exert the effort required.
ii. Hidden information: One of the two parties has some knowledge
which the other party does not know. The principal thus tries to
devise a contract or scheme that will reveal the information of the
agent. An example of this kind of problem is captured in the
screening model. Screening explains the coexistence of
sharecropping with fixed-rent and wage contracts; and it fits with the
observation that share tenancy is often associated with lower
productivity than fixed rent contracts since screening predicts that
the more able (and more productive) tenants will choose fixed-rent
contracts and the less able will choose sharecropping.
Land Tenancy and Welfare
 In Africa, land remains crucial for poverty reduction as most
rural households rely on it for the survival of present and future
generations because the livelihoods of over 70% of the
population in Africa are mainly linked to land and natural
resources exploitation.
 The coexistence of various forms of tenure in Africa - state,
communal, customary, individual - suggests the need of a better
understanding of the pertinent relationship between land
tenure, food security and sustainable development in Africa.
 In order to address land issues and thus formulate appropriate
food security and poverty reduction policies, it is necessary to
understand the links between access to land and access to other
sources of income and capital. In particular, it is crucial to have a
better understanding of the structures of agrarian economies as
they relate to rural poverty and hunger.
Land Tenancy and Welfare - ADePT
 This paper also examines the land tenure systems in Tanzania using
the 2012-13 Tanzanian National Panel Survey (NPS) provided by the
Living Standards Measurement Study –World Bank. It focuses on
establishing the link between land and household welfare in Tanzania.
 Using ADePT is a free software program developed by the World
Bank’s Development Research Group that analyzes survey data and
outputs print-ready, standardized tables and charts. By automating the
analysis of survey data, ADePT minimizes errors and reduces the
amount of time it takes to produce analytical reports.
 The tool is intended for use by policy analysts, agricultural ministries
staff, NGOs and international organizations and researchers interested
in getting a better understanding of the farm household economy. By
making it simpler and faster to produce analytical reports, ADePT
Agriculture frees up resources for the interpretation of results, and
facilitates using data to design evidence based policies and
investments.
What is ADePT?
 Automatizes and standardizes the production of
analytical reports
Master aclass
 Uses micro data from surveys to produce
richsessions
set of
March 18 in MC2-800:
tables and graphs
9:00 Survey Solutions
• Reduces time needed, and minimizes
human
error
11:00
ADePT
Crops
• Modules available: poverty & inequality, social
protection, food security, employment, gender, health,
education, livestock and now crops
• Objective: Enhance the utilization of data, broaden the
users of LSMS-type (and other) data
• The software is freely available and can be
downloaded from: worldbank.org/adept
ADePT: The agriculture module
• Outline of a descriptive report from LSMStype data
• Crops:
– Farm structure and land characteristics
– Inputs, production, income and sales
• Livestock:
– Production, ownership, income, inputs and
outputs
ADePT Agriculture: Key characteristics
Domains:
• Farm structure and land
characteristics
• Inputs and services
• Crop production and
income
• Constraints to crop
production
• Ancillary and custom
tables
Analysis by:
• Urban and Rural
• Regions
• Land quintiles
• Welfare quintiles
ADePT: Land characteristics
Domains:
• Size of holdings
• Tenancy arrangements
• Land distribution (Gini)
• Land use
• Quality: Irrigation,
erosion etc.
• Use of inputs (fertilizers,
mechanization)
Analysis by:
• Urban and Rural
• Regions
• Land quintiles
• Welfare quintiles
Table 4: Amount of land by tenancy arrangement over expenditure quintiles
1
2
Total welfare quintiles
3
4
5
Total
Area of residence
Urban
GRANTED RIGHT OF OCCUPANCY
CERTIFICATE OF CUSTOMARY RIGHT OF OCCUPANCY
RESIDENTIAL LICENSE
VILLAGE-GOVERNMENT-WITNESSED PURCHASE
AGREEMENT
LOCAL-COURT-CERTIFIED PURCHASE AGREEMENT
INHERITANCE LETTER
LETTER OF ALLOCATION FROM VILLAGE GOV'T
OTHER GOVERNMENT DOCUMENT
OFFICIAL CORRESPONDENCE
UTILITY OR OTHER BILL
NO TITLE
Rural
GRANTED RIGHT OF OCCUPANCY
CERTIFICATE OF CUSTOMARY RIGHT OF OCCUPANCY
RESIDENTIAL LICENSE
VILLAGE-GOVERNMENT-WITNESSED PURCHASE
AGREEMENT
LOCAL-COURT-CERTIFIED PURCHASE AGREEMENT
INHERITANCE LETTER
LETTER OF ALLOCATION FROM VILLAGE GOV'T
OTHER GOVERNMENT DOCUMENT
OFFICIAL CORRESPONDENCE
UTILITY OR OTHER BILL
NO TITLE
Total
GRANTED RIGHT OF OCCUPANCY
CERTIFICATE OF CUSTOMARY RIGHT OF OCCUPANCY
RESIDENTIAL LICENSE
VILLAGE-GOVERNMENT-WITNESSED PURCHASE
AGREEMENT
LOCAL-COURT-CERTIFIED PURCHASE AGREEMENT
INHERITANCE LETTER
LETTER OF ALLOCATION FROM VILLAGE GOV'T
OTHER GOVERNMENT DOCUMENT
OFFICIAL CORRESPONDENCE
UTILITY OR OTHER BILL
NO TITLE
33.015
218.101
28.542
326.830
7.107
307.909
4.790
149.898
280.420
546.431
41.762
354.120
1.549.170
41.762
3.212
58.405
52.723
182.667
449.128
749.188
53.383
28.100
109.697
20.332
80.639
235.342
1.714
47.643
300.075
20.664
223.244
237.240
26.735
252.570
534.253
7.526
3.735
3.406.762
6.523
4.295.123
30.220
5.410.076
7.271
10.374
5.474.451
12.093
8.555.159
122.827
632.196
1.420.941
1.302
14.797
62.946
27.319.535
2.102
14.711
11.963
26.561
18.373
4.235
3.334
34.543
1.103
1.518
668.686
24.571
1.163
735.666
71.180
6.014
926
9.316
27.358
28.913
361.114
427.826
5.205
33.373
583
3.839
134.880
11.638
27.285
49.828
7.577
581
101.616
66.014
18.476
230.020
13.811
512.640
669.768
479.082
521.186
711.419
85.229
55.385
549.717
583
2.598
13.811
2.913.748
35.117
232.812
40.505
353.390
25.480
312.143
3.334
39.333
151.001
1.518
949.105
571.003
42.925
1.089.787
1.620.350
47.776
4.138
67.721
80.081
211.581
810.242
1.177.014
53.383
33.305
143.070
583
7.526
17.546
3.919.402
20.332
84.478
370.222
13.352
74.927
349.903
28.241
223.825
338.856
92.749
271.046
764.273
6.523
4.964.890
30.220
5.889.158
7.271
10.374
5.995.637
2.598
12.093
9.266.578
208.057
687.581
1.970.658
1.884
17.395
76.757
30.233.282
2.598
Table 7: Share of land by tenancy arrangements status over expenditure quintiles
1
2
Total welfare quintiles
3
4
5
Total
1,05
3,86
0,00
0,67
4,13
0,00
0,15
2,96
0,00
0,13
1,82
0,00
2,31
5,67
0,34
0,88
3,67
0,08
0,31
1,94
1,54
3,31
4,72
2,50
0,34
1,44
2,11
0,00
0,42
0,15
90,33
0,71
2,67
4,59
0,00
0,00
0,32
84,97
0,15
1,30
5,63
0,00
0,00
0,38
87,90
0,32
3,86
2,83
0,00
0,18
0,64
86,91
0,49
3,48
4,92
0,00
0,00
0,51
77,55
0,40
2,60
4,10
0,01
0,11
0,41
85,25
1,05
2,60
0,00
2,39
3,68
0,00
2,86
2,12
0,64
4,32
0,34
1,36
4,52
2,02
1,25
2,86
2,25
0,59
0,16
2,64
8,07
6,75
12,95
5,85
0,00
0,27
3,11
0,74
0,00
2,40
89,67
0,00
0,93
4,64
0,00
0,00
0,00
85,73
1,58
2,51
5,74
0,00
0,00
0,00
76,49
2,49
1,33
14,36
0,00
0,00
0,00
69,05
5,08
3,16
9,53
0,00
0,15
0,00
61,33
1,76
1,58
6,89
0,19
0,03
0,62
77,37
1,05
3,65
0,00
0,86
4,08
0,00
0,42
2,87
0,06
0,46
1,71
0,11
2,56
5,26
0,44
1,10
3,51
0,13
0,29
2,02
2,19
3,59
5,64
2,88
0,28
1,25
2,27
0,12
0,35
0,52
90,22
0,63
2,47
4,60
0,00
0,00
0,28
85,06
0,29
1,42
5,64
0,00
0,00
0,34
86,76
0,49
3,66
3,75
0,00
0,17
0,58
85,48
1,01
3,45
5,44
0,00
0,02
0,46
75,72
0,55
2,49
4,41
0,03
0,10
0,43
84,37
Area of residence
Urban
GRANTED RIGHT OF OCCUPANCY
CERTIFICATE OF CUSTOMARY RIGHT OF OCCUPANCY
RESIDENTIAL LICENSE
VILLAGE-GOVERNMENT-WITNESSED PURCHASE
AGREEMENT
LOCAL-COURT-CERTIFIED PURCHASE AGREEMENT
INHERITANCE LETTER
LETTER OF ALLOCATION FROM VILLAGE GOV'T
OTHER GOVERNMENT DOCUMENT
OFFICIAL CORRESPONDENCE
UTILITY OR OTHER BILL
NO TITLE
Rural
GRANTED RIGHT OF OCCUPANCY
CERTIFICATE OF CUSTOMARY RIGHT OF OCCUPANCY
RESIDENTIAL LICENSE
VILLAGE-GOVERNMENT-WITNESSED PURCHASE
AGREEMENT
LOCAL-COURT-CERTIFIED PURCHASE AGREEMENT
INHERITANCE LETTER
LETTER OF ALLOCATION FROM VILLAGE GOV'T
OTHER GOVERNMENT DOCUMENT
OFFICIAL CORRESPONDENCE
UTILITY OR OTHER BILL
NO TITLE
Total
GRANTED RIGHT OF OCCUPANCY
CERTIFICATE OF CUSTOMARY RIGHT OF OCCUPANCY
RESIDENTIAL LICENSE
VILLAGE-GOVERNMENT-WITNESSED PURCHASE
AGREEMENT
LOCAL-COURT-CERTIFIED PURCHASE AGREEMENT
INHERITANCE LETTER
LETTER OF ALLOCATION FROM VILLAGE GOV'T
OTHER GOVERNMENT DOCUMENT
OFFICIAL CORRESPONDENCE
UTILITY OR OTHER BILL
NO TITLE
Concluding remarks
 Three forms of land tenure contracts exist; pure rental contract,
contract farming and sharecropping. The choice among these
contracts and the efficient allocation of resources depends on the
landlord’s ability to monitor or observe the effort and actions of the
tenant (agent).
 The landlord maximizes his utility function by equating the marginal
costs to marginal revenue and thus pays the tenant a fixed amount,
just enough to cover the agent’s reservation utility. The first best
solution is no longer obtainable in the context where the landlord
cannot observe the tenants actions (both ex-ante or ex-post) due to
the presence of asymmetric information.
 Alfred Marshall emphasized the moral hazard problem that is
associated with sharecropping and how this further leads to
inefficiencies. He claimed that any contract other than fixed rent
contract distorts the tenant’s input supply away from what he termed
as the “efficient level.
Concluding remarks
 Empirical evidence continues to show the existence and persistence
of sharecropping as a mechanism of land tenure and this is
particularly true in the developing world where most individuals are
farmers or do practice farming activities. Why then does
sharecropping continue to persist?
 Focusing the evidence of land tenure in the developing countries this
paper tries to answer a very controversial question by making some
concluding remarks.
 The definition of efficiency. In his model, Marshall’s assumes that the
landlord is “rational” and so he will always maximise the earnings
and thus prefer a fixed rent contract compared to the sharecropping
alternative.
Concluding remarks
 Do agents are always utility maximises. Whether or not landlords and
agents pay attention exclusively on the amount of effort or actions of
the agents. Is the effort of the agent the only factor that influences his
output levels or are there other factors are also taken into
consideration like, the risk attitudes of both the principal (landlord) and
the agent (tenant) and how the risks are shared among these agents in
their decision making process.
 Monitoring costs. Marshall in his work identifies the high costs of
supervision of tenants by the landlord as the central cause of
inefficiency in sharecropping. Agricultural and farming activities in
developing countries are often practised in a context where strong
social and cultural norms exists. Small scale farmers do not migrate
often and thus create some sort of reputation based on trust with the
landlord. Social and cultural norms are strongly perceived and abided to
in these contexts.
Concluding remarks
 Moreover, peer monitoring is also practised in these contexts due
to family ties and the above mentioned strong social norms. These
factors render the costs of monitoring for the landlord reasonably
lower than in other contexts.
 No single model can be used to identify or explain the presence of
one land tenure contract or another. Other factors like the risk
attitudes of the agents, factors that affect monitoring costs and the
ability of the landlord to screen the tenants need to be taken into
consideration. Sharecropping may emerge inefficient from a purely
Marshallian view. It however allows agents to mitigate other issues
such as risk at the cost of efficiency.
 Empirically, this paper highlights the important linkages that exist
between land, land tenure systems and welfare measures.
Thank you for your attention