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Skills, Partnerships and Tenancy in Sri Lankan Rice Farms

  • Sanjaya DeSilva
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    This paper examines whether sharecroppers and fixed-rent tenants in the rice farms of South Asia are distinguished by their farming skills. The idea that fixed-rent contracts are typically given to relatively skilled tenants dates back to the agricultural (tenancy) ladder hypothesis of Spillman [1919]. The screening models [e.g. Hallagan 1978] that have attempted to formalize this idea assume that landlords do not observe the tenants' skill levels. This assumption is restrictive, and has found little support in empirical studies. The principal-agent model proposed in this paper focuses on the differences between time-intensive and skill- intensive labor tasks. I show that tenancy contracts are designed to match the provision of these tasks with the owners of time and skill inputs. Sharecropping, in this model, provides an incentive scheme that allows for the specialization between a time-abundant tenant and a skill-abundant landlord. The second part of the paper empirically explores this result with household-level data from Sri Lanka. A two-stage model that distinguishes the choice of contract from the extent of land leased is used. The results clearly show that relatively skilled farmers are more likely to become fixed-rent tenants. I also find that, conditional on contract choice, farming skills do not affect the extent of land leased. A substantial part of the empirical analysis is devoted to the measurement of farming skills. I interpret farming skills as the contribution of observed farmer characteristics to the technical efficiency of the farm. This measure recognizes that many dimensions of skills are observed, and the use of weights computed from a production function to construct the skill index is theoretically more appealing than the ad hoc selection of proxy variables.

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    File URL: http://www.econ.yale.edu/growth_pdf/cdp819.pdf
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    Paper provided by Economic Growth Center, Yale University in its series Working Papers with number 819.

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    Length: 62 pages
    Date of creation: Oct 2000
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    Handle: RePEc:egc:wpaper:819
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    1. Bell, Clive & Zusman, Pinhas, 1976. "A Bargaining Theoretic Approach to Cropsharing Contracts," American Economic Review, American Economic Association, vol. 66(4), pages 578-88, September.
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    3. Jondrow, James & Knox Lovell, C. A. & Materov, Ivan S. & Schmidt, Peter, 1982. "On the estimation of technical inefficiency in the stochastic frontier production function model," Journal of Econometrics, Elsevier, vol. 19(2-3), pages 233-238, August.
    4. Bliss, C. J. & Stern, N. H., 1982. "Palanpur: The Economy of an Indian Village," OUP Catalogue, Oxford University Press, number 9780198284192, March.
    5. Rougoor, Carin W. & Trip, Ger & Huirne, Ruud B. M. & Renkema, Jan A., 1998. "How to define and study farmers' management capacity: theory and use in agricultural economics," Agricultural Economics, Blackwell, vol. 18(3), pages 261-272, May.
    6. Roumasset, J., 1995. "The nature of the agricultural firm," Journal of Economic Behavior & Organization, Elsevier, vol. 26(2), pages 161-177, March.
    7. Reifschneider, David & Stevenson, Rodney, 1991. "Systematic Departures from the Frontier: A Framework for the Analysis of Firm Inefficiency," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 32(3), pages 715-23, August.
    8. Emmanuel Skoufias, 1995. "Household Resources, Transaction Costs, and Adjustment through Land Tenancy," Land Economics, University of Wisconsin Press, vol. 71(1), pages 42-56.
    9. Schmidt, Peter & Knox Lovell, C. A., 1979. "Estimating technical and allocative inefficiency relative to stochastic production and cost frontiers," Journal of Econometrics, Elsevier, vol. 9(3), pages 343-366, February.
    10. Pant, Chandrashekar, 1983. "Tenancy and family resources : A model and some empirical analysis," Journal of Development Economics, Elsevier, vol. 12(1-2), pages 27-39.
    11. Rougoor, Carin W. & Trip, Ger & Huirne, Ruud B.M. & Renkema, Jan A., 1998. "How to define and study farmers' management capacity: theory and use in agricultural economics," Agricultural Economics of Agricultural Economists, International Association of Agricultural Economists, vol. 18(3), May.
    12. Battese, G E & Coelli, T J, 1995. "A Model for Technical Inefficiency Effects in a Stochastic Frontier Production Function for Panel Data," Empirical Economics, Springer, vol. 20(2), pages 325-32.
    13. Pitt, Mark M. & Lee, Lung-Fei, 1981. "The measurement and sources of technical inefficiency in the Indonesian weaving industry," Journal of Development Economics, Elsevier, vol. 9(1), pages 43-64, August.
    14. Meng, Chun-Lo & Schmidt, Peter, 1985. "On the Cost of Partial Observability in the Bivariate Probit Model," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 26(1), pages 71-85, February.
    15. Joseph E. Stiglitz, 1973. "Incentives and Risk-Sharing in Sharecropping," Cowles Foundation Discussion Papers 353, Cowles Foundation for Research in Economics, Yale University.
    16. Shaban, Radwan Ali, 1987. "Testing between Competing Models of Sharecropping," Journal of Political Economy, University of Chicago Press, vol. 95(5), pages 893-920, October.
    17. Kumbhakar, Subal C & Ghosh, Soumendra & McGuckin, J Thomas, 1991. "A Generalized Production Frontier Approach for Estimating Determinants of Inefficiency in U.S. Dairy Farms," Journal of Business & Economic Statistics, American Statistical Association, vol. 9(3), pages 279-86, July.
    18. Kumbhakar, Subal C., 1997. "Modeling allocative inefficiency in a translog cost function and cost share equations: An exact relationship," Journal of Econometrics, Elsevier, vol. 76(1-2), pages 351-356.
    19. Kumbhakar, Subal C., 1987. "The specification of technical and allocative inefficiency in stochastic production and profit frontiers," Journal of Econometrics, Elsevier, vol. 34(3), pages 335-348, March.
    20. Bell, Clive, 1988. "Credit markets and interlinked transactions," Handbook of Development Economics, in: Hollis Chenery & T.N. Srinivasan (ed.), Handbook of Development Economics, edition 1, volume 1, chapter 16, pages 763-830 Elsevier.
    21. Aigner, Dennis & Lovell, C. A. Knox & Schmidt, Peter, 1977. "Formulation and estimation of stochastic frontier production function models," Journal of Econometrics, Elsevier, vol. 6(1), pages 21-37, July.
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