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We make use of data from the 2005 Albania Living Standard Measurement Survey to investigate the factorsaffecting household agriculture efficiency and land market development. To assess the functioning of land rentalmarkets and explore efficiency- and equity impacts of land rental, we use a model of producers who differ inendowments and skills and who face imperfect labor markets and transaction costs. The empirical evidence, of astochastic frontier estimate, shows that productivity is low and most farms are inefficiently utilized. The average levelof agriculture efficiency among rural household is very less than 30% but household that rent in land are more efficient.However, results from a probit regression on rental market participation shows that rental market helps to transfer landto more efficient producers. However, several constraints in credit market, input, labor, and the lack of irrigation areoutweighing the productivity advantage of the tenants. In addition to that, land market development is delayed byremaining restrictions and high transaction cost. To overcome these limitations as well as inadequate system of landtitle registration, household are using informal land transactions, such as inheritance, in order to increase farmingefficiency.
