Ever since Adam Smith, share contracts have been condemned for their lack of incentives. Sharecropping tenants face incentives to undersupply productive inputs since they receive only a fraction of the marginal revenue. The empirical literature reports that lands under sharecropping are less productive and employ inputs less intensively than those operated by owners. This paper shows that: (i) share contracts are also associated with lower-quality lands; (ii) the sharecroppers' input choices satisfy profit-maximization conditions; and (iii) the contract form does not affect farm productivity conditional on land quality and input use. These findings suggest that farmers optimally choose to employ inputs less intensively in lower-quality lands under sharecropping and, then, these lands end up being less productive. Land- quality selection bias (as opposite to incentives) seems to be behind the existing evidence on the productive disadvantage of share contracts.
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Find related papers by JEL classification: C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation and Testing D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information O12 - Economic Development, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development Q15 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Land Ownership and Tenure; Land Reform; Land Use; Irrigation
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