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A theory of sharecropping: the role of price behavior and imperfect competition

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  • Sen, Debapriya

Abstract

This paper proposes a theory of sharecropping on the basis of price behavior in agriculture and imperfectly competitive nature of rural product markets. We consider a contractual setting between one landlord and one tenant with seasonal variation of price, where the tenant receives a low price for his output while the landlord can sell his output at a higher price by incurring a cost of storage. We consider two different classes of contracts: (i) tenancy contracts and (ii) crop-buying contracts. It is shown that sharecropping is the optimal form within tenancy contracts and it also dominates crop-buying contracts provided the price variation is not too large. Then we consider interlinked contracts that have both tenancy and crop-buying elements and show that there are multiple optimal interlinked contracts. Finally, proposing an equilibrium refinement that incorporates imperfect competition in the rural product market, it is shown that the unique contract that is robust to this refinement results in sharecropping.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 14898.

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Date of creation: 24 Apr 2009
Handle: RePEc:pra:mprapa:14898
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Keywords: Sharecropping; price variation; imperfect competition; tenancy contracts; crop-buying contracts; interlinkage; the epsilon-agent;

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Find related papers by JEL classification:
  • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
  • J43 - Labor and Demographic Economics - - Particular Labor Markets - - - Agricultural Labor Markets
  • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements
  • D02 - Microeconomics - - General - - - Institutions: Design, Formation, Operations, and Impact
  • Q15 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Land Ownership and Tenure; Land Reform; Land Use; Irrigation; Agriculture and Environment
  • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development

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Cited by:

  1. 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.

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