Given the fragmented and small size of land holdings in Nepal, the viability of crop production is a pressing concern. Rental or tenancy arrangements, which equalise marginal returns from factors of production across households, offer a solution to this viability crisis. In this context, our study is unique as it not only examines the incidence and forms of tenancy, but also identifies the determinants of the land leasing decision of rural households, and discusses their implications for agrarian development in Nepal. Drawing on primary survey data from 350 households in six districts of plains and hills, we provide evidence of the widespread prevalence of informal tenancy in Nepal. Despite locational variations explained by the location-specific cropping patterns, sharecropping and fixed-rent are found to be the primary forms of tenancy contracts. A Tobit regression analysis identifies certain household level, farm level, and location-specific characteristics as important factors influencing land leasing decisions. Our analysis suggests that the land supply in the land lease market may increase in the future, and therefore, it is pertinent to examine the legal provisions that govern the use of such lands. Hence, we also examine the legal provisions concerning tenancy relations.
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