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Evidence on the Incentive Properties of Share Contracts

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  • Luis H. B. Braido

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 indeed less productive and employ inputs less intensively than those operated by owners. This paper shows that (1) sharecropping and fixed-rent tenancy are both associated with low-quality lands, (2) plots under sharecropping and fixed rent present (on average) the same unconditional productivity, (3) controlling for observed land quality and input use, their average productivities are also identical to those of owner-operated plots, and (4) the input choices satisfy the same profit maximization conditions for all land contracts. These results challenge the conventional wisdom connecting sharecropping to incentive distortions. They support an alternative view that farmers optimally employ more input resources into good-quality lands, which are typically managed by owners. (c) 2008 byThe University of Chicago. All rights reserved.

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  • Luis H. B. Braido, 2008. "Evidence on the Incentive Properties of Share Contracts," Journal of Law and Economics, University of Chicago Press, vol. 51(2), pages 327-349, May.
  • Handle: RePEc:ucp:jlawec:v:51:y:2008:i:2:p:327-349
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    Citations

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    Cited by:

    1. Kanidska Dam, 2015. "Incentives and Income Distribution in Tenancy Relationships," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 171(3), pages 512-543, September.
    2. Luis H. B. Braido, 2003. "Insurance and Incentives in Sharecropping," CESifo Working Paper Series 1098, CESifo Group Munich.
    3. 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.
    4. Marc F. Bellemare, 2012. "Insecure Land Rights and Share Tenancy: Evidence from Madagascar," Land Economics, University of Wisconsin Press, vol. 88(1), pages 155-180.
    5. Luis H.B. Braido, 2005. "Risk and Insurance in Sharecropping," Risk and Insurance 0508002, EconWPA.
    6. Bellemare, Marc F., 2010. "Insecure Land Rights and Share Tenancy in Madagascar," MPRA Paper 23640, University Library of Munich, Germany.
    7. 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.
    8. 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).
    9. Kaniska Dam, 2010. "Principal-Agent Assignment: Implications for Incentives and Income Distribution in Tenancy Relationships," Working papers DTE 495, CIDE, División de Economía.
    10. Mohamed Salah Matoussi & Neji Saidi, 2014. "Financial Constraints Risk Aversion and Sharecropping in Rainfed Agriculture: Application to North West Tunisia," Working Papers 880, Economic Research Forum, revised Nov 2014.

    More about this item

    JEL classification:

    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • O12 - Economic Development, Innovation, 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; Agriculture and Environment

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