Previous studies have shown that the quality of property rights, farm size and market imperfections significantly affect agricultural efficiency. This article investigates the interaction between the quality of property rights and size when the countries are heterogeneous in degree of market imperfection, using a multilevel statistical approach for a sample of 84 developing countries. The results show a positive relation between technical efficiency and quality of property rights and a negative relation between farm size and quality of property rights. Furthermore, the results reject the regularly stated inverse relation between farm size and technical efficiency. In addition, the results show that market imperfections significantly affect the relations between technical efficiency and the explanatory variables. According to the results, increasing the farm size in countries with well‐defined property rights reduces agricultural efficiency. On the other hand, in the majority of developing countries with low quality of property rights, the relation between farm size and technical efficiency is statistically significant and positive.

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