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We analyze how market power by traders on local agricultural spot markets affects investment in crop quality by smallholders in a context with "imperfect institutions"—without third-party contract enforcement and with incomplete input markets. Farmers and traders can engage in relational contracting where the promise of future rents supports current cooperation. We analyze informal contracting under the shadow of side selling by the farmer and ask how changes in the competitiveness of local markets affect flows of inputs in relational contracts. When local markets become more competitive, fewer farmers are included in relational contracting with traders, and farmers who remain in such relationships receive less support from traders. We document empirical evidence from local wheat markets in Ethiopia that is consistent with the theory. [ABSTRACT FROM AUTHOR]

While the debates on improving tenure security through land registration and certification are well discussed in Ethiopia, evidence on the effects of earlier land reforms is limited. This study examines the impact of land reform provoking tenure insecurity implemented prior to land registration and certification on the factor demand of farmers. Based on Ethiopian unique panel data in 1997 and 1999, we analyze the impact of the latest large-scale land redistribution implemented in Amhara Region in 1997. We employed an extended model of a difference-in-differences approach that allows us to test for asymmetries in impacts on both land-expropriated and land-redistributed households. The empirical results show that impact of the land redistribution on the factor demand of farmers depend on distinct factors, and it is asymmetric between the expropriated and redistributed households. The increase in land holdings (including land transfers) promotes land rentals, suggesting that there is an active land rental market; however, there is no evidence that it is caused by the land redistribution in 1997. It is assumed that tenure insecurity triggered by the land redistribution made them avoid land rentals. The results help fill the research gap in the recent debate concerning improving tenure security through land registration and certification. The expropriated households significantly increase their demand for the amount and the intensity of fertilizer input, while the redistributed households significantly decrease their off-farm labor choice. Contrastingly, there is no significant change in demand for factors with incomplete markets, such as livestock. To effectively implement land redistribution, it is necessary to simultaneously implement policies stimulating factor markets, low-interest credit services, extension services, and land tenure securing programs. • We examined the impacts of land redistribution in Amhara Region, Ethiopia in 1997. • Effects on factor demands were asymmetric between land-expropriated and land-redistributed households. • Although the land rental market is active, tenure insecurity may inhibit factor demand. • Results have implications for tenure security through land registration and certification introduced after land reform. [ABSTRACT FROM AUTHOR]