Moral Hazard and Marshallian Inefficiency:Evidence from Tunisia
AbstractWe formalize the link between optimal cost-sharing contracts and the production technology in the presence of moral hazard by appealing to several well-known results from duality theory. Building on intuitions from the interlinkage literature, we show that optimal contractual structure is determined by the (i) substitution possibilities that exist between di¤erent observable factor inputs, as well as (ii) between these inputs and unobservable e¤ort. We endogenize contractual choice using landlord characteristics as instruments, exploiting the fact that, in our dataset, landlords interact with several tenants and vice versa. The approach is applied to an unbalanced plot-level panel of cost sharing contracts in a Tunisian village, using a translog representation of the restricted profit function. Contractual terms are found to be a significant determinant of input use and therefore lead to Marshallian inefficiency, while the optimality of the underlying contractual structure is rejected.
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Bibliographic InfoPaper provided by CERDI in its series Working Papers with number 200534.
Date of creation: 2005
Date of revision:
Keywords: moral hazard; profit functions; sharecropping; Marshallian inefficiency;
Other versions of this item:
- Arcand, Jean-Louis & Ai, Chunrong & Ethier, Francois, 2007. "Moral hazard and Marshallian inefficiency: Evidence from Tunisia," Journal of Development Economics, Elsevier, vol. 83(2), pages 411-445, July.
- Al, C. & Arcand, J.L. & Ethier, F., 1996. "Moral Hazard and Marshallian Inefficiency: Evidence from Tunisia," Cahiers de recherche 9605, Universite de Montreal, Departement de sciences economiques.
- Al, C. & Arcand, J.L. & Ethier, F., 1996. "Moral Hazard and Marshallian Inefficiency: Evidence from Tunisia," Cahiers de recherche 9605, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
- D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
- Q10 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - General
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