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Optimal Share Contracts under Theft

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  • de Janvry, Alain
  • Sadoulet, Elisabeth

Abstract

Temptation for tenants to under-report output levels under share contracts is undoubtedly high. There is evidence that theft of product occurs and that this affects the design of share contracts. In this case, the optimal output share is chosen to not only induce effort but also to reduce theft of product, while meeting the landlord’s limited liability obligation. The tenant’s share thus rises with his desire and ability to steal. The optimal contract allows both residual inefficiency in the provision of effort and residual cheating. This contract is also modified by process utility in cheating, ability of the landlord to supervise, risk of revenge with abusive surveillance, and switch to products less prone to theft.

Suggested Citation

  • de Janvry, Alain & Sadoulet, Elisabeth, 2004. "Optimal Share Contracts under Theft," Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series qt6kq6t3bb, Department of Agricultural & Resource Economics, UC Berkeley.
    • Handle: RePEc:cdl:agrebk:qt6kq6t3bb
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