IDEAS home Printed from https://ideas.repec.org/a/eee/jeborg/v80y2011i1p181-199.html
   My bibliography  Save this article

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

Author

Listed:
  • Sen, Debapriya

Abstract

This paper proposes a theory of sharecropping on the basis of price behavior in agriculture and imperfectly competitive nature of rural product markets. First we show the superiority of sharecropping over fixed rental contracts in a benchmark landlord–tenant model 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. Then we consider more general interlinked contracts to show that there are multiple optimal contracts. Finally we incorporate imperfect competition in the product market by assuming that a third agent (called the ɛ-agent) may emerge to compete with the landlord as a buyer of the tenant's output. It is shown that (i) the presence of this competing agent generates a Pareto-improving subset of share contracts out of the multiple contracts and (ii) the unique contract that is robust to the emergence of the ɛ-agent results in sharecropping.

Suggested Citation

  • Sen, Debapriya, 2011. "A theory of sharecropping: The role of price behavior and imperfect competition," Journal of Economic Behavior & Organization, Elsevier, vol. 80(1), pages 181-199.
    • Handle: RePEc:eee:jeborg:v:80:y:2011:i:1:p:181-199
    DOI: 10.1016/j.jebo.2011.03.006
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0167268111000928
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.jebo.2011.03.006?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. 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.
    2. Rosenzweig, Mark R & Wolpin, Kenneth I, 1993. "Credit Market Constraints, Consumption Smoothing, and the Accumulation of Durable Production Assets in Low-Income Countries: Investment in Bullocks in India," Journal of Political Economy, University of Chicago Press, vol. 101(2), pages 223-244, April.
    3. Baumol, William J, 1982. "Contestable Markets: An Uprising in the Theory of Industry Structure," American Economic Review, American Economic Association, vol. 72(1), pages 1-15, March.
    4. Gangopadhyay, Shubhashis & Sengupta, Kunal, 1986. "Interlinkages in Rural Markets," Oxford Economic Papers, Oxford University Press, vol. 38(1), pages 112-121, March.
    5. Bhaduri, Amit, 1973. "A Study in Agricultural Backwardness under Semi-Feudalism," Economic Journal, Royal Economic Society, vol. 83(329), pages 120-137, March.
    6. Townsend, Robert M, 1994. "Risk and Insurance in Village India," Econometrica, Econometric Society, vol. 62(3), pages 539-591, May.
    7. Ronald James Clark, 1968. "Land Reform and Peasant Market Participation on the North Highlands of Bolivia," Land Economics, University of Wisconsin Press, vol. 44(2), pages 153-172.
    8. 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.
    9. Jean-Jacques Laffont & Mohamed Salah Matoussi, 1995. "Moral Hazard, Financial Constraints and Sharecropping in El Oulja," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 62(3), pages 381-399.
    10. William Hallagan, 1978. "Self-Selection by Contractual Choice and the Theory of Sharecropping," Bell Journal of Economics, The RAND Corporation, vol. 9(2), pages 344-354, Autumn.
    11. Basu, Kaushik & Bell, Clive & Bose, Pinaki, 2000. "Interlinkage, limited liability and strategic interaction," Journal of Economic Behavior & Organization, Elsevier, vol. 42(4), pages 445-462, August.
    12. 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.
    13. 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.
    14. 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.
    15. Mitra, Pradeep K., 1983. "A theory of interlinked rural transactions," Journal of Public Economics, Elsevier, vol. 20(2), pages 167-191, March.
    16. Daniel A. Ackerberg & Maristella Botticini, 2002. "Endogenous Matching and the Empirical Determinants of Contract Form," Journal of Political Economy, University of Chicago Press, vol. 110(3), pages 564-591, June.
    17. Rao, C H Hanumantha, 1971. "Uncertainty, Entrepreneurship, and Sharecropping in India," Journal of Political Economy, University of Chicago Press, vol. 79(3), pages 578-595, May-June.
    18. Martin Ravallion & Shubham Chaudhuri, 1997. "Risk and Insurance in Village India: Comment," Econometrica, Econometric Society, vol. 65(1), pages 171-184, January.
    19. Ray, Tridip, 1999. "Share tenancy as strategic delegation," Journal of Development Economics, Elsevier, vol. 58(1), pages 45-60, February.
    20. Roy, Jaideep & Serfes, Konstantinos, 2001. "Intertemporal discounting and tenurial contracts," Journal of Development Economics, Elsevier, vol. 64(2), pages 417-436, April.
    21. Pranab Bardhan & Nirvikar Singh, 1987. "On Moral Hazard and Cost Sharing under Sharecropping," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 69(2), pages 382-383.
    22. D. Gale Johnson, 1950. "Resource Allocation under Share Contracts," Journal of Political Economy, University of Chicago Press, vol. 58, pages 111-111.
    23. Kaivan Munshi & Mark R. Rosenzweig, 2005. "Why is Mobility in India so Low? Social Insurance, Inequality, and Growth," CID Working Papers 121, Center for International Development at Harvard University.
    24. Bliss, C. J. & Stern, N. H., 1982. "Palanpur: The Economy of an Indian Village," OUP Catalogue, Oxford University Press, number 9780198284192.
    25. Basu, Kaushik, 1992. "Limited liability and the existence of share tenancy," Journal of Development Economics, Elsevier, vol. 38(1), pages 203-220, January.
    26. David M. G. Newbery, 1977. "Risk Sharing, Sharecropping and Uncertain Labour Markets," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 44(3), pages 585-594.
    27. 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.
    28. Rosenzweig, Mark R & Binswanger, Hans P, 1993. "Wealth, Weather Risk and the Composition and Profitability of Agricultural Investments," Economic Journal, Royal Economic Society, vol. 103(416), pages 56-78, January.
    29. Reid, Joseph D, Jr, 1976. "Sharecropping and Agricultural Uncertainty," Economic Development and Cultural Change, University of Chicago Press, vol. 24(3), pages 549-576, April.
    30. Joseph E. Stiglitz, 1974. "Incentives and Risk Sharing in Sharecropping," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 41(2), pages 219-255.
    31. Sengupta, Kunal, 1997. "Limited liability, moral hazard and share tenancy," Journal of Development Economics, Elsevier, vol. 52(2), pages 393-407, April.
    32. 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.
    33. Eswaran, Mukesh & Kotwal, Ashok, 1985. "A Theory of Contractual Structure in Agriculture," American Economic Review, American Economic Association, vol. 75(3), pages 352-367, June.
    34. Kaushik Basu, 2003. "Analytical Development Economics: The Less Developed Economy Revisited," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262523442, December.
    35. Basu, Kaushik, 1983. "The Emergence of Isolation and Interlinkage in Rural Markets," Oxford Economic Papers, Oxford University Press, vol. 35(2), pages 262-280, July.
    36. Bardhan, Pranab, 2003. "Poverty, Agrarian Structure, and Political Economy in India: Selected Essays," OUP Catalogue, Oxford University Press, number 9780195661170.
    37. Banerji, Sanjay, 1995. "Interlinkage, investment and adverse selection," Journal of Economic Behavior & Organization, Elsevier, vol. 28(1), pages 11-21, September.
    38. Naresh Sharma & Jean Dreze, 1996. "Sharecropping in a North Indian Village," Journal of Development Studies, Taylor & Francis Journals, vol. 33(1), pages 1-39.
    39. Ray, Tridip & Singh, Nirvikar, 2001. "Limited liability, contractual choice, and the tenancy ladder," Journal of Development Economics, Elsevier, vol. 66(1), pages 289-303, October.
    40. Muthoo, Abhinay, 1998. "Renegotiation-proof tenurial contracts as screening mechanisms," Journal of Development Economics, Elsevier, vol. 56(1), pages 1-26, June.
    41. Forster, Robert, 1957. "The Noble as Landlord in the Region of Toulouse at the End of the Old Regime," The Journal of Economic History, Cambridge University Press, vol. 17(2), pages 224-244, June.
    42. Shetty, Sudhir, 1988. "Limited liability, wealth differences and tenancy contracts in agrarian economies," Journal of Development Economics, Elsevier, vol. 29(1), pages 1-22, July.
    43. Udry, Christopher, 1990. "Credit Markets in Northern Nigeria: Credit as Insurance in a Rural Economy," The World Bank Economic Review, World Bank, vol. 4(3), pages 251-269, September.
    44. Franklin Allen, 1982. "On Share Contracts and Screening," Bell Journal of Economics, The RAND Corporation, vol. 13(2), pages 541-547, Autumn.
    45. Gangopadhyay, Shubhashis & Sengupta, Kunal, 1987. "Small Farmers, Moneylenders and Trading Activity," Oxford Economic Papers, Oxford University Press, vol. 39(2), pages 333-342, June.
    46. S. Narayan, 2009. "India," Chapters, in: Peter Draper & Philip Alves & Razeen Sally (ed.), The Political Economy of Trade Reform in Emerging Markets, chapter 7, Edward Elgar Publishing.
    47. Bardhan, Pranab & Udry, Christopher, 1999. "Development Microeconomics," OUP Catalogue, Oxford University Press, number 9780198773719.
    48. Habib, Irfan, 1969. "Potentialities of Capitalistic Development in the Economy of Mughal India," The Journal of Economic History, Cambridge University Press, vol. 29(1), pages 32-78, March.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Jiancai PI, 2013. "An organizational economics approach to the existence of sharecropping," Agricultural Economics, Czech Academy of Agricultural Sciences, vol. 59(11), pages 537-541.
    2. Raul V. Fabella, 2016. "Why Fixed Rent Contracts are Less Prevalent: Weak Third Party Enforcement and Endogenous Principal Type," UP School of Economics Discussion Papers 201606, University of the Philippines School of Economics.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Debapriya Sen, 2005. "Sharecropping, interlinkage, and price variation," Department of Economics Working Papers 05-10, Stony Brook University, Department of Economics.
    2. Ananish Chaudhuri & Pushkar Maitra, 1997. "Determinants of Land Tenure Contracts; Theory and Evidence from Rural India," Departmental Working Papers 199710, Rutgers University, Department of Economics.
    3. Jiancai PI, 2016. "Altruism, moral hazard, and sharecropping," Agricultural Economics, Czech Academy of Agricultural Sciences, vol. 62(12), pages 575-584.
    4. Roy, Jaideep & Serfes, Konstantinos, 2001. "Intertemporal discounting and tenurial contracts," Journal of Development Economics, Elsevier, vol. 64(2), pages 417-436, April.
    5. Jiancai PI, 2013. "An organizational economics approach to the existence of sharecropping," Agricultural Economics, Czech Academy of Agricultural Sciences, vol. 59(11), pages 537-541.
    6. Raul V. Fabella, 2016. "Why Fixed Rent Contracts are Less Prevalent: Weak Third Party Enforcement and Endogenous Principal Type," UP School of Economics Discussion Papers 201606, University of the Philippines School of Economics.
    7. Ananish Chaudhuri, 1997. "A Dynamic Model of Contractual Choice in Tenancy," Departmental Working Papers 199711, Rutgers University, Department of Economics.
    8. Konrad B Burchardi & Selim Gulesci & Benedetta Lerva & Munshi Sulaiman, 2019. "Moral Hazard: Experimental Evidence from Tenancy Contracts," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 134(1), pages 281-347.
    9. Mansuri, Ghazala, 2007. "Credit layering in informal financial markets," Journal of Development Economics, Elsevier, vol. 84(2), pages 715-730, November.
    10. M. A. Taslim, 1992. "A Survey of Theories of Cropshare Tenancy," The Economic Record, The Economic Society of Australia, vol. 68(3), pages 254-275, September.
    11. Oriana Bandiera, 1999. "On the Structure of Tenancy contracts: Theory and Evidence fron 19th Century Rural Sicily," STICERD - Development Economics Papers - From 2008 this series has been superseded by Economic Organisation and Public Policy Discussion Papers 19, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
    12. Jacoby, Hanan G. & Mansuri, Ghazala, 2009. "Incentives, supervision, and sharecropper productivity," Journal of Development Economics, Elsevier, vol. 88(2), pages 232-241, March.
    13. Lanjouw, Jean Olson, 1999. "Information and the operation of markets: tests based on a general equilibrium model of land leasing in India," Journal of Development Economics, Elsevier, vol. 60(2), pages 497-527, December.
    14. Ray, Tridip, 1999. "Share tenancy as strategic delegation," Journal of Development Economics, Elsevier, vol. 58(1), pages 45-60, February.
    15. Oriana Bandiera, 2002. "Land Distribution, Incentives and the Choice of Production Techniques in Nicaragua," STICERD - Development Economics Papers - From 2008 this series has been superseded by Economic Organisation and Public Policy Discussion Papers 34, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
    16. Ackerberg, Daniel A. & Botticini, Maristella, 2000. "The Choice of Agrarian Contracts in Early Renaissance Tuscany: Risk Sharing, Moral Hazard, or Capital Market Imperfections?," Explorations in Economic History, Elsevier, vol. 37(3), pages 241-257, July.
    17. Ananish Chaudhuri & Pushkar Maitra, 2001. "Tenant characteristics and the choice of tenurial contracts in rural India," Journal of International Development, John Wiley & Sons, Ltd., vol. 13(2), pages 169-181.
    18. 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.
    19. Mukhamedova, Nozilakhon & Pomfret, Richard, 2019. "Why does sharecropping survive? Agrarian institutions and contract choice in Kazakhstan and Uzbekistan," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 61(4), pages 576-597.
    20. Nozilakhon Mukhamedova & Richard Pomfret, 2019. "Why Does Sharecropping Survive? Agrarian Institutions and Contract Choice in Kazakhstan and Uzbekistan," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 61(4), pages 576-597, December.

    More about this item

    Keywords

    Sharecropping; Price variation; Imperfect competition; Interlinkage; The ɛ-agent; Pareto-improving contracts;
    All these keywords.

    JEL classification:

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

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:jeborg:v:80:y:2011:i:1:p:181-199. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/jebo .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.