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A theory of sharecropping: the role of price behavior and imperfect competition

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Sen, Debapriya

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Abstract

This paper proposes a theory of sharecropping on the basis of price behavior in agriculture and imperfectly competitive nature of rural product markets. We consider a contractual setting between one landlord and one tenant with seasonal variation of price, where the tenant receives a low price for his output while the landlord can sell his output at a higher price by incurring a cost of storage. We consider two different classes of contracts: (i) tenancy contracts and (ii) crop-buying contracts. It is shown that sharecropping is the optimal form within tenancy contracts and it also dominates crop-buying contracts provided the price variation is not too large. Then we consider interlinked contracts that have both tenancy and crop-buying elements and show that there are multiple optimal interlinked contracts. Finally, proposing an equilibrium refinement that incorporates imperfect competition in the rural product market, it is shown that the unique contract that is robust to this refinement results in sharecropping.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 14898.

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Date of creation: 24 Apr 2009
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Handle: RePEc:pra:mprapa:14898

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Related research
Keywords: Sharecropping; price variation; imperfect competition; tenancy contracts; crop-buying contracts; interlinkage; the epsilon-agent;

Find related papers by JEL classification:
D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
J43 - Labor and Demographic Economics - - Particular Labor Markets - - - Agricultural Labor Markets
O17 - Economic Development, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements
D02 - Microeconomics - - General - - - Institutions: Design, Formation, and Operations
Q15 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Land Ownership and Tenure; Land Reform; Land Use; Irrigation
O12 - Economic Development, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development

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  1. Reid, Joseph D, Jr, 1976. " Sharecropping and Agricultural Uncertainty," Economic Development and Cultural Change, University of Chicago Press, vol. 24(3), pages 549-76, April.
  2. Ghatak, Maitreesh & Pandey, Priyanka, 2000. "Contract choice in agriculture with joint moral hazard in effort and risk," Journal of Development Economics, Elsevier, vol. 63(2), pages 303-326, December. [Downloadable!] (restricted)
  3. Braverman, Avishay & Stiglitz, Joseph E, 1982. "Sharecropping and the Interlinking of Agrarian Markets," American Economic Review, American Economic Association, vol. 72(4), pages 695-715, September. [Downloadable!] (restricted)
  4. Mitra, Pradeep K., 1983. "A theory of interlinked rural transactions," Journal of Public Economics, Elsevier, vol. 20(2), pages 167-191, March. [Downloadable!] (restricted)
  5. Stiglitz, Joseph E, 1974. "Incentives and Risk Sharing in Sharecropping," Review of Economic Studies, Blackwell Publishing, vol. 41(2), pages 219-55, April. [Downloadable!] (restricted)
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  6. Shaban, Radwan Ali, 1987. "Testing between Competing Models of Sharecropping," Journal of Political Economy, University of Chicago Press, vol. 95(5), pages 893-920, October. [Downloadable!] (restricted)
  7. Basu, Kaushik, 1992. "Limited liability and the existence of share tenancy," Journal of Development Economics, Elsevier, vol. 38(1), pages 203-220, January. [Downloadable!] (restricted)
  8. Basu, Kaushik, 1983. "The Emergence of Isolation and Interlinkage in Rural Markets," Oxford Economic Papers, Oxford University Press, vol. 35(2), pages 262-80, July. [Downloadable!] (restricted)
  9. Gangopadhyay, Shubhashis & Sengupta, Kunal, 1986. "Interlinkages in Rural Markets," Oxford Economic Papers, Oxford University Press, vol. 38(1), pages 112-21, March. [Downloadable!] (restricted)
  10. Udry, Christopher, 1990. "Credit Markets in Northern Nigeria: Credit as Insurance in a Rural Economy," World Bank Economic Review, Oxford University Press, vol. 4(3), pages 251-69, September.
  11. 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. [Downloadable!] (restricted)
  12. Bardhan, P K & Srinivasan, T N, 1971. "Cropsharing Tenancy in Agriculture: A Theoretical and Empirical Analysis," American Economic Review, American Economic Association, vol. 61(1), pages 48-64, March. [Downloadable!] (restricted)
  13. Franklin Allen, 1982. "On Share Contracts and Screening," Bell Journal of Economics, The RAND Corporation, vol. 13(2), pages 541-547, Autumn. [Downloadable!] (restricted)
  14. D. Gale Johnson, 1950. "Resource Allocation under Share Contracts," Journal of Political Economy, University of Chicago Press, vol. 58, pages 111. [Downloadable!] (restricted)
  15. Muthoo, Abhinay, 1998. "Renegotiation-proof tenurial contracts as screening mechanisms," Journal of Development Economics, Elsevier, vol. 56(1), pages 1-26, June. [Downloadable!] (restricted)
  16. Martin Ravallion & Shubham Chaudhuri, 1997. "Risk and Insurance in Village India: Comment," Econometrica, Econometric Society, vol. 65(1), pages 171-184, January.
  17. Ray, Tridip, 1999. "Share tenancy as strategic delegation," Journal of Development Economics, Elsevier, vol. 58(1), pages 45-60, February. [Downloadable!] (restricted)
  18. Seema Jayachandran, 2006. "Selling Labor Low: Wage Responses to Productivity Shocks in Developing Countries," Journal of Political Economy, University of Chicago Press, vol. 114(3), pages 538-575, June. [Downloadable!] (restricted)
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  19. Townsend, Robert M, 1994. "Risk and Insurance in Village India," Econometrica, Econometric Society, vol. 62(3), pages 539-91, May. [Downloadable!] (restricted)
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  20. Hayami, Y. & Kikuchi, M. & Marciano, E. B., 1999. "Middlemen and peasants in rice marketing in the Philippines," Agricultural Economics, Blackwell, vol. 20(2), pages 79-93, March. [Downloadable!] (restricted)
  21. Roy, Jaideep & Serfes, Konstantinos, 2001. "Intertemporal discounting and tenurial contracts," Journal of Development Economics, Elsevier, vol. 64(2), pages 417-436, April. [Downloadable!] (restricted)
    Other versions:
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