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Optimal Share Contracts under Theft

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  • de Janvry, Alain
  • Sadoulet, Elisabeth

Abstract

Temptation for tenants to under-report output levels under share contracts is undoubtedly high. There is evidence that theft of product occurs and that this affects the design of share contracts. In this case, the optimal output share is chosen to not only induce effort but also to reduce theft of product, while meeting the landlord’s limited liability obligation. The tenant’s share thus rises with his desire and ability to steal. The optimal contract allows both residual inefficiency in the provision of effort and residual cheating. This contract is also modified by process utility in cheating, ability of the landlord to supervise, risk of revenge with abusive surveillance, and switch to products less prone to theft.

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Paper provided by Department of Agricultural & Resource Economics, UC Berkeley in its series Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series with number qt6kq6t3bb.

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Date of creation: 01 Mar 2004
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Handle: RePEc:cdl:agrebk:qt6kq6t3bb

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Keywords: Sharecropping; cheating; agrarian contract;

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  1. Basu, Kaushik, 1992. "Limited liability and the existence of share tenancy," Journal of Development Economics, Elsevier, vol. 38(1), pages 203-220, January.
  2. Dickens, William T, et al, 1989. "Employee Crime and the Monitoring Puzzle," Journal of Labor Economics, University of Chicago Press, vol. 7(3), pages 331-47, July.
  3. Eswaran, Mukesh & Kotwal, Ashok, 1985. "A Theory of Contractual Structure in Agriculture," American Economic Review, American Economic Association, vol. 75(3), pages 352-67, June.
  4. Salih, Siddig A, 1993. "An Analysis of Unreported Sales of Wheat in Sudan," Australian Economic Papers, Wiley Blackwell, vol. 32(60), pages 161-74, June.
  5. Usher, D, 1987. "Theft as a Paradigm for Departures from Efficiency," Oxford Economic Papers, Oxford University Press, vol. 39(2), pages 235-52, June.
  6. Naresh Sharma & Jean Dreze, 1996. "Sharecropping in a North Indian Village," Journal of Development Studies, Taylor & Francis Journals, vol. 33(1), pages 1-39.
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