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Share Contracts and Unobserved Ability

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Abstract

We present a model with a monopolistic landlord and tenants with unobservable ability. In this setting, the landlord should use a wage contract to extract the full surplus due to ability since a share or fixed rent contract leaves some of the surplus in the hands of the tenants. We combine this issue with a standard moral hazard problem on the tenants' side, which argues for a fixed rent contract. A share contract is an optimal compromise between these two forces.

Suggested Citation

  • Eugene Canjels & Ute Volz, 2001. "Share Contracts and Unobserved Ability," SCEPA working paper series. SCEPA's main areas of research are macroeconomic policy, inequality and poverty, and globalization. 2001-03, Schwartz Center for Economic Policy Analysis (SCEPA), The New School.
  • Handle: RePEc:epa:cepawp:2001-03
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    File URL: http://www.economicpolicyresearch.org/scepa/publications/workingpapers/2001/cepa200103.pdf
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    References listed on IDEAS

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    1. Reid, Joseph D, Jr, 1976. " Sharecropping and Agricultural Uncertainty," Economic Development and Cultural Change, University of Chicago Press, vol. 24(3), pages 549-576, April.
    2. Joseph E. Stiglitz, 1974. "Incentives and Risk Sharing in Sharecropping," Review of Economic Studies, Oxford University Press, vol. 41(2), pages 219-255.
    3. Franklin Allen, 1982. "On Share Contracts and Screening," Bell Journal of Economics, The RAND Corporation, vol. 13(2), pages 541-547, Autumn.
    4. William Hallagan, 1978. "Self-Selection by Contractual Choice and the Theory of Sharecropping," Bell Journal of Economics, The RAND Corporation, vol. 9(2), pages 344-354, Autumn.
    5. Basu, Kaushik, 1992. "Limited liability and the existence of share tenancy," Journal of Development Economics, Elsevier, vol. 38(1), pages 203-220, January.
    6. Eswaran, Mukesh & Kotwal, Ashok, 1985. "A Theory of Contractual Structure in Agriculture," American Economic Review, American Economic Association, vol. 75(3), pages 352-367, June.
    7. Muthoo, Abhinay, 1998. "Renegotiation-proof tenurial contracts as screening mechanisms," Journal of Development Economics, Elsevier, vol. 56(1), pages 1-26, June.
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    More about this item

    Keywords

    sharecropping; tenancy contracts; agricultural contracts; pooling equilibrium;

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
    • 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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