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On the Structure of Tenancy contracts: Theory and Evidence fron 19th Century Rural Sicily

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  • Oriana Bandiera

Abstract

In a world with asymmetric information, contractual terms are an important incentive device. This paper studies the effect of crop characteristics on the choice between short-term and long-term tenancy contracts and on the choice between sharecropping and fixed rent contracts when the production process depends on two non-contractibles: effort devoted to current production and effort devoted to plant and soil maintenance. Long-term contracts are effective in providing incentive for non-contractible investment. Since, however, incentive provision is costly because of information rents, long-term contracts will be employed only when maintenance benefits are high enough. The predictions of the theory are tested on a unique data set containing 705 tenancy contracts signed between 1870 and 1880 in the province of Syracuse (Italy). The empirical evidence shows that indeed long term contracts were used if the crops grown had higher maintenance needs. Other comparative static results are derived and tested empirically.

Suggested Citation

  • 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and Evidence fron 19th Century Rural Sicily," STICERD - Development Economics Papers - From 2008 this series has been superseded by Economic Organisation and Public Policy Discussion Papers 19, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
  • Handle: RePEc:cep:stidep:19
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    Cited by:

    1. Bandiera, Oriana, 2002. "Land distribution, incentives and the choice of production techniques in Nicaragua," LSE Research Online Documents on Economics 3545, London School of Economics and Political Science, LSE Library.
    2. Hooper, Louise, 2008. "Paying for performance: Uncertainty, asymmetric information and the payment model," Research in Transportation Economics, Elsevier, vol. 22(1), pages 157-163, January.

    More about this item

    Keywords

    Microeconomic analyses of economic development; asymmetric and private information; land ownership and tenure; land reforms; land use; irrigation; formal and informal sectors; shadow economy; institutional arrangements;

    JEL classification:

    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • 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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