Well-functioning factor markets play an important role in improving the performance of the agricultural sector. Our paper examines both technical and allocative efficiencies at the household level, with an application to a cross-section sample of rural households in three provinces of China in 2009. In a first step, we use nonparametric methods to estimate household efficiency. In a second step, we examine econometrically the role of land rental market and its linkages with household-level efficiencies. We find that participation in the land rental market does not affect technical efficiency but has large positive effects on allocative efficiency. This stresses the need to distinguish between technical efficiency and allocative efficiency in the analysis of land tenure issues. The improvements in allocative efficiency from land-leasing contribute to significant increases in household income in rural China.
