IDEAS home Printed from https://ideas.repec.org/p/hai/wpaper/200206.html
   My bibliography  Save this paper

Risk Aversion as Effort Incentive: A Correction and Prima Facie Test of the Moral Hazard Theory of Share Tenancity

Author

Listed:
  • Mark A. DeWeaver

    () (Ithaca Advisors, LLC)

  • James A. Roumasset

    () (Department of Economics, University of Hawaii at Manoa)

Abstract

We show that Stiglitz's (1974) classic principal-agency theory of share tenancy does not imply, as alleged, that the optimal tenant share is less than one for risk-averse tenants nor that the share decreases monotonically with the tenant's inherent risk aversion. Tenants may self insure by working harder--increasingly so for higher levels of risk aversion--with the result that the more risk averse work for higher instead of lower shares. When the model is parameterized based on previous studies of Philippine agriculture, it predicts a U-shaped relationship between optimal tenant's share and inherent risk aversion. Landlords choose rent contracts for both high and low levels of risk aversion. For intermediate levels, the optimal sharing rates are 80% and above. In contrast, actual sharing rates in the study area ranged from 50-60%, with most farmers contracted on a 50:50 basis. We conclude that the risk-aversion versus moral hazard theory of tenure choice is incomplete. Rent contracts must have additional disadvantages and/or share tenancy additional benefits that are not accounted for in the static principal-agency theory.

Suggested Citation

  • Mark A. DeWeaver & James A. Roumasset, 2002. "Risk Aversion as Effort Incentive: A Correction and Prima Facie Test of the Moral Hazard Theory of Share Tenancity," Working Papers 200206, University of Hawaii at Manoa, Department of Economics.
  • Handle: RePEc:hai:wpaper:200206
    as

    Download full text from publisher

    File URL: http://www.economics.hawaii.edu/research/workingpapers/WP_02-61.pdf
    File Function: First version, 2002
    Download Restriction: no

    Other versions of this item:

    References listed on IDEAS

    as
    1. Joseph E. Stiglitz, 1974. "Incentives and Risk Sharing in Sharecropping," Review of Economic Studies, Oxford University Press, vol. 41(2), pages 219-255.
    2. Reid, Joseph D., 1973. "Sharecropping As An Understandable Market Response: The Post-Bellum South," The Journal of Economic History, Cambridge University Press, vol. 33(01), pages 106-130, March.
    3. Ross, Stephen A, 1973. "The Economic Theory of Agency: The Principal's Problem," American Economic Review, American Economic Association, vol. 63(2), pages 134-139, May.
    4. David E. M. Sappington, 1991. "Incentives in Principal-Agent Relationships," Journal of Economic Perspectives, American Economic Association, vol. 5(2), pages 45-66, Spring.
    5. Rao, C H Hanumantha, 1971. "Uncertainty, Entrepreneurship, and Sharecropping in India," Journal of Political Economy, University of Chicago Press, vol. 79(3), pages 578-595, May-June.
    6. Roumasset, James & Uy, Marilou, 1980. "Piece rates, time rates, and teams : Explaining patterns in the employment relation," Journal of Economic Behavior & Organization, Elsevier, vol. 1(4), pages 343-360, December.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. James Roumasset, 2004. "Rural Institutions, Agricultural Development, and Pro-Poor Economic Growth," Asian Journal of Agriculture and Development, Southeast Asian Regional Center for Graduate Study and Research in Agriculture (SEARCA), vol. 1(1), pages 61-82, June.
    2. James Roumasset, 2006. "The Economics of Agricultural Development: What Have We Learned? Processes," Working Papers 200604, University of Hawaii at Manoa, Department of Economics.

    More about this item

    JEL classification:

    • O1 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development
    • D2 - Microeconomics - - Production and Organizations

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:hai:wpaper:200206. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Web Technician). General contact details of provider: http://edirc.repec.org/data/deuhius.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.