We make use of data from the 2005 Albania Living Standard Measurement Survey to investigate the factors affecting household agriculture efficiency and land market development. To assess the functioning of land rental markets and explore efficiency- and equity impacts of land rental, we use a model of producers who differ in endowments and skills and who face imperfect labor markets and transaction costs. The empirical evidence, of a stochastic frontier estimate, shows that productivity is low and most farms are inefficiently utilized. The average level of agriculture efficiency among rural household is very less than 30% but household that rent in land are more efficient. However, results from a probit regression on rental market participation shows that rental market helps to transfer land to more efficient producers. However, several constraints in credit market, input, labor, and the lack of irrigation are outweighing the productivity advantage of the tenants. In addition to that, land market development is delayed by remaining restrictions and high transaction cost. To overcome these limitations as well as inadequate system of land title registration, household are using informal land transactions, such as inheritance, in order to increase farming efficiency.