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Incomplete contracts and investment : a study of land tenancy in Pakistan

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  • Jacoby, Hanan G.
  • Mansuri, Ghazala

Abstract

When contracts are incomplete, relationship-specific investments may be underprovided due to the threat of opportunistic expropriation or holdup. The authors find evidence of such underinvestment on tenanted land in rural Pakistan. Using data from households cultivating multiple plots under different tenure arrangements, they show that land-specific investment is lower on leased plots. This result is robust to the possible effects of asymmetric information in the leasing market. Greater tenure security also increases land-specific investment on leased plots. Moreover, variation in tenure security appears to be driven largely by heterogeneity across landlords, suggesting that reputation may be important in mitigating the holdup problem.

Suggested Citation

  • Jacoby, Hanan G. & Mansuri, Ghazala, 2006. "Incomplete contracts and investment : a study of land tenancy in Pakistan," Policy Research Working Paper Series 3826, The World Bank.
  • Handle: RePEc:wbk:wbrwps:3826
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    References listed on IDEAS

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    Cited by:

    1. Holden, Stein T. & Bezabih, Mintewab, 2006. "Tenure Insecurity, Transaction Costs in the Land Lease Market and their Implications for Gendered Productivity Differentials," 2006 Annual Meeting, August 12-18, 2006, Queensland, Australia 25273, International Association of Agricultural Economists.
    2. 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.
    3. Luis H. B. Braido, 2003. "Insurance and Incentives in Sharecropping," CESifo Working Paper Series 1098, CESifo Group Munich.
    4. Gine, Xavier, 2005. "Cultivate or rent out ? Land security in rural Thailand," Policy Research Working Paper Series 3734, The World Bank.
    5. Luis H. B. Braido, 2008. "Evidence on the Incentive Properties of Share Contracts," Journal of Law and Economics, University of Chicago Press, vol. 51(2), pages 327-349, May.
    6. Luis H.B. Braido, 2005. "Risk and Insurance in Sharecropping," Risk and Insurance 0508002, EconWPA.
    7. World Bank, 2007. "Pakistan : Promoting Rural Growth and Poverty Reduction," World Bank Other Operational Studies 7984, The World Bank.

    More about this item

    Keywords

    Investment and Investment Climate; Municipal Housing and Land; Contract Law; Economic Theory&Research; Real Estate Development;

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