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Evidence on the Incentive Properties of Share Contracts

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  • Luis H.B. Braido

    (Getulio Vargas Foundation, Graduate School of Economics)

Abstract

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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Bibliographic Info

Paper provided by EconWPA in its series Development and Comp Systems with number 0508013.

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Date of creation: 30 Aug 2005
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Handle: RePEc:wpa:wuwpdc:0508013

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Keywords: Econometric test; moral hazard; development; tenancy data; selection bias;

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References

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  1. Oriana Bandiera, 2002. "Land distribution, incentives and the choice of production techniques in Nicaragua," LSE Research Online Documents on Economics 3545, London School of Economics and Political Science, LSE Library.
  2. Dubois, Pierre, 2002. "Moral hazard, land fertility and sharecropping in a rural area of the Philippines," Journal of Development Economics, Elsevier, vol. 68(1), pages 35-64, June.
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  7. Stiglitz, Joseph E, 1974. "Incentives and Risk Sharing in Sharecropping," Review of Economic Studies, Wiley Blackwell, vol. 41(2), pages 219-55, April.
  8. Allen, Douglas & Lueck, Dean, 1992. "Contract Choice in Modern Agriculture: Cash Rent versus Cropshare," Journal of Law and Economics, University of Chicago Press, vol. 35(2), pages 397-426, October.
  9. D. Gale Johnson, 1950. "Resource Allocation under Share Contracts," Journal of Political Economy, University of Chicago Press, vol. 58, pages 111.
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  12. Radner, Roy, 1985. "Repeated Principal-Agent Games with Discounting," Econometrica, Econometric Society, vol. 53(5), pages 1173-98, September.
  13. Luis H. B. Braido, 2003. "Insurance and Incentives in Sharecropping," CESifo Working Paper Series 1098, CESifo Group Munich.
  14. Rubinstein, Ariel & Yaari, Menahem E., 1983. "Repeated insurance contracts and moral hazard," Journal of Economic Theory, Elsevier, vol. 30(1), pages 74-97, June.
  15. Bengt Holmstrom, 1997. "Moral Hazard and Observability," Levine's Working Paper Archive 1205, David K. Levine.
  16. Douglas W. Allen & Dean Lueck, 1993. "Transaction Costs and the Design of Cropshare Contracts," RAND Journal of Economics, The RAND Corporation, vol. 24(1), pages 78-100, Spring.
  17. Mundlak, Yair, 1996. "Production Function Estimation: Reviving the Primal," Econometrica, Econometric Society, vol. 64(2), pages 431-38, March.
  18. Laffont, Jean-Jacques & Matoussi, Mohamed Salah., 1988. "Moral Hazard, Financial Constraints and Sharecropping in El Oulja," Working Papers 667, California Institute of Technology, Division of the Humanities and Social Sciences.
  19. 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.
  20. Rao, C H Hanumantha, 1971. "Uncertainty, Entrepreneurship, and Sharecropping in India," Journal of Political Economy, University of Chicago Press, vol. 79(3), pages 578-95, May-June.
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Citations

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Cited by:
  1. Luis H. B. Braido, 2003. "Insurance and Incentives in Sharecropping," CESifo Working Paper Series 1098, CESifo Group Munich.
  2. Franken, Jason R.V. & Pennings, Joost M.E. & Garcia, Philip, 2012. "Measuring Risk Attitude and Relation to Marketing Behavior," 2012 Annual Meeting, August 12-14, 2012, Seattle, Washington 124471, Agricultural and Applied Economics Association.
  3. Pranab Bardhan & Dilip Mookherjee, 2007. "Land Reform And Farm Productivity In West Bengal," Boston University - Department of Economics - The Institute for Economic Development Working Papers Series dp-163, Boston University - Department of Economics.
  4. Bellemare, Marc F., 2010. "Insecure Land Rights and Share Tenancy in Madagascar," MPRA Paper 23640, University Library of Munich, Germany.
  5. Luis H.B. Braido, 2005. "Risk and Insurance in Sharecropping," Risk and Insurance 0508002, EconWPA.
  6. Ndoye Niane, Aifa Fatimata & Burger, Kees & Bulte, Erwin H., 2010. "Horticultural Households Profit Optimization and the Efficiency of Labour Contract Choice," 2010 AAAE Third Conference/AEASA 48th Conference, September 19-23, 2010, Cape Town, South Africa 95776, African Association of Agricultural Economists (AAAE) & Agricultural Economics Association of South Africa (AEASA).

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