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Credit rationing, tenancy, productivity, and the dynamics of inequality

  • Braverman, Avishay
  • Stiglitz, Joseph E.

Why, when given the same resources, might productivity be lower on farms operated through sharecropping than on owner-run farms? The reason is that sharecropping, much less wage contracts, cannot overcome the divergence of interests between those who till the land and those who own it. Only land redistribution can do that. This paper presents notes toward a general equilibrium theory of land tenancy that suggest how changes in technology and publicly provided infrastructure can affect the equilibrium distribution of land in countries where credit is rationed. When credit to famers is rationed, changes in technology can increase the inequality in landholdings - with a long term increase in share tenancy. This is turn might reduce productivity, at least partially offsetting the initial improvements. The paper suggests that the development of effective rural financial institutions would reduce the likelihood of these negative effects on equality and productivity. It further cautions though that past attempts in creating such institutions have failed because of a lack of accountability and of enforcement procedures.

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Paper provided by The World Bank in its series Policy Research Working Paper Series with number 176.

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Date of creation: 31 May 1989
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Handle: RePEc:wbk:wbrwps:176
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  1. Joseph E. Stiglitz, 1973. "Incentives and Risk-Sharing in Sharecropping," Cowles Foundation Discussion Papers 353, Cowles Foundation for Research in Economics, Yale University.
  2. Stiglitz, Joseph E & Weiss, Andrew, 1981. "Credit Rationing in Markets with Imperfect Information," American Economic Review, American Economic Association, vol. 71(3), pages 393-410, June.
  3. Stiglitz, J.E., 1988. "Sharecropping," Papers 11, Princeton, Woodrow Wilson School - Discussion Paper.
  4. Greenwald, Bruce C & Stiglitz, Joseph E, 1986. "Externalities in Economies with Imperfect Information and Incomplete Markets," The Quarterly Journal of Economics, MIT Press, vol. 101(2), pages 229-64, May.
  5. Braverman, Avishay & Guasch, J. Luis, 1986. "Rural credit markets and institutions in developing countries: Lessons for policy analysis from practice and modern theory," World Development, Elsevier, vol. 14(10-11), pages 1253-1267.
  6. Braverman, Avishay & Srinivasan, T. N., 1981. "Credit and sharecropping in agrarian societies," Journal of Development Economics, Elsevier, vol. 9(3), pages 289-312, December.
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