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Credit and Land Contracting: A Test of the Theory of Sharecropping

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  • Das, Narayan
  • Janvry, Alain
  • Sadoulet, Elisabeth

Abstract

Choice of a share vs. fixed rent land rental contract has figured prominently in the theory of industrial organization. This theory tells us that, while a share contract is inefficient in a first-best world, it may be the preferred option under second-best conditions. It has thus predicted the existence of sharecropping as the potentially preferred contract under conditions of liquidity constraint. Rigorous empirical evidence is, however, still lacking on this basic contribution of theory. We use a randomized experiment in a credit program for landless workers and marginal farmers organized by BRAC in Bangladesh to show that increased access to credit has a large positive effect on the choice of fixed rent over share rent contracts, both in terms of number of contracts and area contracted. As predicted by theory, the magnitude of this shift away from sharecropping is enhanced when the tenant is less exposed to risk. Development programs that facilitate access to credit to potential tenants can thus help them take more efficient land rental contracts.

Suggested Citation

  • Das, Narayan & Janvry, Alain & Sadoulet, Elisabeth, 2019. "Credit and Land Contracting: A Test of the Theory of Sharecropping," Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series qt8268f7c1, Department of Agricultural & Resource Economics, UC Berkeley.
    • Handle: RePEc:cdl:agrebk:qt8268f7c1
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    Cited by:

    1. Cao, Yueming & Bai, Yunli & Zhang, Linxiu, 2021. "Plot Size, Adjacency, and Farmland Rental Contract Choice," 2021 Conference, August 17-31, 2021, Virtual 315378, International Association of Agricultural Economists.
    2. Alain de Janvry & Elisabeth Sadoulet, 2019. "Transforming developing country agriculture: Removing adoption constraints and promoting inclusive value chain development," Working Papers hal-02287668, HAL.
    3. Yueming Cao & Yunli Bai & Linxiu Zhang, 2022. "Plot Size, Adjacency, and Farmland Rental Contract Choice," Land, MDPI, vol. 11(4), pages 1-21, April.
    4. de Janvry, Alain & Sadoulet, Elisabeth, 2020. "Using agriculture for development: Supply- and demand-side approaches," World Development, Elsevier, vol. 133(C).
    5. He, Yiming & Collins, Alan R., 2021. "The effect of information structure on farmland contractual choice: toward a revised theory of share tenancy with new evidence from Guangdong, China," International Review of Law and Economics, Elsevier, vol. 65(C).
    6. Yuxuan Xu & Jie Lyu & Ying Xue & Hongbin Liu, 2022. "Intentions of Farmers to Renew Productive Agricultural Service Contracts Using the Theory of Planned Behavior: An Empirical Study in Northeastern China," Agriculture, MDPI, vol. 12(9), pages 1-21, September.

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