A Dynamic Model of Contractual Choice in Tenancy
AbstractTwo issues in land tenure contracts in agriculture that have vexed economists are (1) the appearance and co-existence of multiple contracts, often in adjoining plots of land and (2) the choice of a share-cropping contract because a share contract being analogous to a proportional tax, is supposed to distort incentives and lead to sub-optimal use of inputs into land as well as lower levels of investment. In this paper we develop a dynamic two period model of landlord-tenant interaction in a principal-agent framework with one sided private information. The landlord has a choice of three contracts - wage, share and rent and chooses a contract so as to maximize her own pay-off. We show that under certain realistic assumptions (1) multiple contracts can co-exist over time and (2) share-cropping can arise and persist. The driving force in the model is the rate at which the agent discounts the future.
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Bibliographic InfoPaper provided by Rutgers University, Department of Economics in its series Departmental Working Papers with number 199711.
Date of creation: 17 Jul 1997
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Adverse selection ; Discount rate; Principal-agent model; Share-cropping; Tenurial contracts;
Find related papers by JEL classification:
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
- L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
- O12 - Economic Development, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
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