Determinants of the Choice of Agricultural Tenancy Contracts in Rural Bangladesh

Participation in the informal land market by farmers is always common in land scarce rural Bangladesh in response to failure of implementation of administratively based land reform system to meet increasing demand for cultivable land and to minimize discrepancy in distribution of factors at the farm level. The objective of the present study is to jointly determine the socio-economic factors underlying decision to lease-in or lease-out land and conditional on these decisions, tenant-land lord's choice of accepting and offering of share versus fixed rent contracts in rural Bangladesh agriculture. The focus is on the risk averseness and moral hazard problem for tenant land lord respectively. An empirical model of contract choice for both parties (tenants and land lords) is compared against a data set from a sample survey of IRRI and finds a mixed evidence of risk averseness among tenants and moral hazard problem among land lords. However, we find attributes of the land lord plays more important part to offer either a sharecropping contract or fixed rent contract than tenant's attributes to choose a contract between two alternatives. This indicates a monopoly power of land lords in Bangladesh in the informal tenancy market.