While the importance of land rental for overall economic development has long been recognized in theory,
empirical evidence on the productivity and equity impact of such markets and the extent to which they realize their
potential has been scant. Representative data from China’s nine most important agricultural provinces illustrate the
impact of rental markets on households’ economic strategies, their welfare, and productivity of land use at the plot
level. While there are positive impacts in each of these dimensions, transaction costs constrain participation by many
producers, thus preventing rental markets from attaining their full potential. Factors that increase transaction costs are
identified, together with a rough estimate of the productivity- and equity- impact of removing them.