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Eviction Threats and Investment Incentives

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  • Abhijit Banerjee
  • Maitreesh Ghatak

Abstract

We show that the effect of eviction threats on unobservable investment effort can be positive. We demonstrate this apparently counter-intuitive result in a model of tenancy where investment by a tenant in the current period raises the chances of doing well in the next period, and therefore retaining the job in the period after next period. If the tenant earns rents, the landlord can partly substitute eviction threats for the crop share as an incentive device. This makes it more attractive for him to elicit investment effort. However, there is a direct negative effect of eviction threats on the tenant's discount factor. We find conditions under which the former effect dominates and eviction threats can increase investment incentives.

Suggested Citation

  • Abhijit Banerjee & Maitreesh Ghatak, 2003. "Eviction Threats and Investment Incentives," STICERD - Development Economics Papers - From 2008 this series has been superseded by Economic Organisation and Public Policy Discussion Papers 39, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
  • Handle: RePEc:cep:stidep:39
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    References listed on IDEAS

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    Cited by:

    1. Amal Hili & Didier Laussel & Ngo Van Long, 2016. "Disentangling Managerial Incentives from a Dynamic Perspective: The Role of Stock Grants," CESifo Working Paper Series 6083, CESifo Group Munich.
    2. Juliano Junqueira Assunção, 2005. "Non-agricultural land use and land reform: theory and evidence from Brazil," Textos para discussão 496, Department of Economics PUC-Rio (Brazil).
    3. Mayshar, Joram & Moav, Omer & Neeman, Zvika, 2017. "Geography, Transparency, and Institutions," American Political Science Review, Cambridge University Press, pages 622-636.
    4. Jérémie Gignoux & Karen Macours & Liam Wren-Lewis, 2014. "Impact of land administration programs on agricultural productivity and rural development: existing evidence, challenges and new approaches," PSE Working Papers halshs-00992873, HAL.
    5. Raul V. Fabella, 2016. "Why Fixed Rent Contracts are Less Prevalent: Weak Third Party Enforcement and Endogenous Principal Type," UP School of Economics Discussion Papers 201606, University of the Philippines School of Economics.
    6. Dubois, Pierre & Vukina, Tomislav, 2009. "Incentives to Invest in Short-term vs. Long-term Contracts: Evidence from a Natural Experiment," IDEI Working Papers 590, Institut d'Économie Industrielle (IDEI), Toulouse, revised Dec 2009.
    7. Catherine Bros & Alain Desdoigts & Hugues Kouassi Kouadio, 2017. "Land Tenure Insecurity as an Investment Incentive: The Case of Migrant Cocoa Farmers and Settlers in Ivory Coast," Working Papers DT/2017/12, DIAL (Développement, Institutions et Mondialisation).
    8. Deininger, Klaus & Jin, Songqing & Yadav, Vandana, 2012. "Does sharecropping affect productivity and long-term investment ? evidence from West Bengal's tenancy reforms," Policy Research Working Paper Series 6293, The World Bank.
    9. Fenske, James, 2011. "Land tenure and investment incentives: Evidence from West Africa," Journal of Development Economics, Elsevier, pages 137-156.
    10. Luis H.B. Braido, 2005. "Risk and Insurance in Sharecropping," Risk and Insurance 0508002, EconWPA.
    11. Bellemare, Marc F., 2010. "Insecure Land Rights and Share Tenancy in Madagascar," MPRA Paper 23640, University Library of Munich, Germany.
    12. Xianlei Ma & Justus Wesseler & Nico Heerink & Futian Qu, 2013. "Land Tenure Reforms and Land Conservation Investments in China ¨C What Does Real Option Value Theory Tell Us?," Review of Economics & Finance, Better Advances Press, Canada, vol. 3, pages 19-33, August.
    13. K. Deininger & S. Jin & H. K. Nagarajan, 2009. "Land Reforms, Poverty Reduction, and Economic Growth: Evidence from India," Journal of Development Studies, Taylor & Francis Journals, vol. 45(4), pages 496-521.
    14. Jonathan Conning & James A. Robinson, 2005. "Property Rights and the Political Organization of Agriculture," Economics Working Paper Archive at Hunter College 405, Hunter College Department of Economics.
    15. Genicot, Garance & Ray, Debraj, 2006. "Bargaining power and enforcement in credit markets," Journal of Development Economics, Elsevier, pages 398-412.
    16. Conning, Jonathan H. & Robinson, James A., 2007. "Property rights and the political organization of agriculture," Journal of Development Economics, Elsevier, pages 416-447.
    17. Menale Kassie & Stein Holden, 2007. "Sharecropping efficiency in Ethiopia: threats of eviction and kinship," Agricultural Economics, International Association of Agricultural Economists, vol. 37(2-3), pages 179-188, September.
    18. repec:gam:jsusta:v:9:y:2017:i:9:p:1542-:d:110344 is not listed on IDEAS
    19. 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.
    20. 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.
    21. Abdulai, Awudu & Owusu, Victor & Goetz, Renan, 2011. "Land tenure differences and investment in land improvement measures: Theoretical and empirical analyses," Journal of Development Economics, Elsevier, pages 66-78.

    More about this item

    Keywords

    Sharecropping tenancy; eviction threats; investment incentives.;

    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
    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • 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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