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Optimal Tenurial Contracts Under Both Moral Hazard and Adverse Selection

Author

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  • Lionel Thomas

    (CRESE - Centre de REcherches sur les Stratégies Economiques (UR 3190) - UFC - Université de Franche-Comté - UBFC - Université Bourgogne Franche-Comté [COMUE])

  • Christian At

    (CRESE - Centre de REcherches sur les Stratégies Economiques (UR 3190) - UFC - Université de Franche-Comté - UBFC - Université Bourgogne Franche-Comté [COMUE])

Abstract

This paper determines the optimal tenurial contract between a monopoly landlord and a tenant protected by limited liability under both adverse selection (based on the tenant’s ability) and moral hazard (based on the tenant’s choice of effort). We identify different optimal contracts depending on the tenant’s outside option. For intermediate values, there is a threshold of tenant ability depending on the outside option level below which the optimal contract is a separating sharecropping contract, and a pooling one otherwise. We also find that an increase in the outside option does not monotonically increase the tenant’s optimal effort.
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  • Lionel Thomas & Christian At, 2018. "Optimal Tenurial Contracts Under Both Moral Hazard and Adverse Selection," Post-Print hal-03763708, HAL.
    • Handle: RePEc:hal:journl:hal-03763708
    DOI: 10.1093/ajae/aay049
    Note: View the original document on HAL open archive server: https://hal.science/hal-03763708
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    Cited by:

    1. Qinan Lu & Xiaodong Du & Huanguang Qiu, 2022. "Adoption patterns and productivity impacts of agricultural mechanization services," Agricultural Economics, International Association of Agricultural Economists, vol. 53(5), pages 826-845, September.

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