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A Dynamic Model of Contractual Choice in Tenancy

  • Ananish Chaudhuri

    ()

    (Rutgers University)

Two issues in land tenure contracts in agriculture that have vexed economists are (1) the appearance and co-existence of multiple contracts, often in adjoining plots of land and (2) the choice of a share-cropping contract because a share contract being analogous to a proportional tax, is supposed to distort incentives and lead to sub-optimal use of inputs into land as well as lower levels of investment. In this paper we develop a dynamic two period model of landlord-tenant interaction in a principal-agent framework with one sided private information. The landlord has a choice of three contracts - wage, share and rent and chooses a contract so as to maximize her own pay-off. We show that under certain realistic assumptions (1) multiple contracts can co-exist over time and (2) share-cropping can arise and persist. The driving force in the model is the rate at which the agent discounts the future.

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Paper provided by Rutgers University, Department of Economics in its series Departmental Working Papers with number 199711.

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Date of creation: 17 Jul 1997
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Handle: RePEc:rut:rutres:199711
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  1. Eswaran, Mukesh & Kotwal, Ashok, 1985. "A Theory of Contractual Structure in Agriculture," American Economic Review, American Economic Association, vol. 75(3), pages 352-67, June.
  2. Newbery, David M G, 1977. "Risk Sharing, Sharecropping and Uncertain Labour Markets," Review of Economic Studies, Wiley Blackwell, vol. 44(3), pages 585-94, October.
  3. Hsiao, Cheng & Nugent, Jeffrey & Perrigne, Isabelle & Qiu, Jicheng, 1998. "Shares versus Residual Claimant Contracts: The Case of Chinese TVEs," Journal of Comparative Economics, Elsevier, vol. 26(2), pages 317-337, June.
  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. Parikshit Ghosh, 1995. "On The Coexistence of Share, Rent and Wage Contracts in a Rural Economy," Boston University - Institute for Economic Development 58, Boston University, Institute for Economic Development.
  6. Laffont, Jean-Jacques & Matoussi, Mohamed Salah, 1995. "Moral Hazard, Financial Constraints and Sharecropping in El Oulja," Review of Economic Studies, Wiley Blackwell, vol. 62(3), pages 381-99, July.
  7. Abhijit Banerjee & Paul J. Gertler & Maitreesh Ghatak, 1998. "Empowerment and Efficiency: The Economics of Agrarian Reform," Working papers 98-22, Massachusetts Institute of Technology (MIT), Department of Economics.
  8. Sugato Bhattacharyya & Francine Lafontaine, 1995. "Double-Sided Moral Hazard and the Nature of Share Contracts," RAND Journal of Economics, The RAND Corporation, vol. 26(4), pages 761-781, Winter.
  9. 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.
  10. Bhalla, Surjit S., 1988. "Does land quality matter? : Theory and measurement," Journal of Development Economics, Elsevier, vol. 29(1), pages 45-62, July.
  11. Joseph E. Stiglitz, 1973. "Incentives and Risk-Sharing in Sharecropping," Cowles Foundation Discussion Papers 353, Cowles Foundation for Research in Economics, Yale University.
  12. Al, C. & Arcand, J.L. & Ethier, F., 1996. "Moral Hazard and Marshallian Inefficiency: Evidence from Tunisia," Cahiers de recherche 9605, Centre interuniversitaire de recherche en ├ęconomie quantitative, CIREQ.
  13. Alston, Lee J & Datta, Samar K & Nugent, Jeffrey B, 1984. "Tenancy Choice in a Competitive Framework with Transactions Costs," Journal of Political Economy, University of Chicago Press, vol. 92(6), pages 1121-33, December.
  14. Stiglitz, J.E., 1988. "Sharecropping," Papers 11, Princeton, Woodrow Wilson School - Discussion Paper.
  15. Allen, Franklin, 1985. "On the Fixed Nature of Sharecropping Contracts," Economic Journal, Royal Economic Society, vol. 95(377), pages 30-48, March.
  16. Allen, Douglas & Lueck, Dean, 1992. "Contract Choice in Modern Agriculture: Cash Rent versus Cropshare," Journal of Law and Economics, University of Chicago Press, vol. 35(2), pages 397-426, October.
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