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Evidence on the Incentive Properties of Share Contracts

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  • Luis H.B. Braido

    (Getulio Vargas Foundation, Graduate School of Economics)

Abstract

Ever since Adam Smith, share contracts have been condemned for their lack of incentives. Sharecropping tenants face incentives to undersupply productive inputs since they receive only a fraction of the marginal revenue. The empirical literature reports that lands under sharecropping are less productive and employ inputs less intensively than those operated by owners. This paper shows that: (i) share contracts are also associated with lower-quality lands; (ii) the sharecroppers' input choices satisfy profit-maximization conditions; and (iii) the contract form does not affect farm productivity conditional on land quality and input use. These findings suggest that farmers optimally choose to employ inputs less intensively in lower-quality lands under sharecropping and, then, these lands end up being less productive. Land- quality selection bias (as opposite to incentives) seems to be behind the existing evidence on the productive disadvantage of share contracts.

Suggested Citation

  • Luis H.B. Braido, 2005. "Evidence on the Incentive Properties of Share Contracts," Development and Comp Systems 0508013, University Library of Munich, Germany.
  • Handle: RePEc:wpa:wuwpdc:0508013
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    References listed on IDEAS

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    11. Luis H. B. Braido, 2003. "Insurance and Incentives in Sharecropping," CESifo Working Paper Series 1098, CESifo.
    12. Abhijit V. Banerjee & Paul J. Gertler & Maitreesh Ghatak, 2002. "Empowerment and Efficiency: Tenancy Reform in West Bengal," Journal of Political Economy, University of Chicago Press, vol. 110(2), pages 239-280, April.
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    17. D. Gale Johnson, 1950. "Resource Allocation under Share Contracts," Journal of Political Economy, University of Chicago Press, vol. 58, pages 111-111.
    18. Bengt Holmstrom, 1979. "Moral Hazard and Observability," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 74-91, Spring.
    19. ZELLNER, Arnold & KMENTA, Jan & DREZE, Jacques H., 1966. "Specification and estimation of Cobb-Douglas production function models," LIDAM Reprints CORE 12, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
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    22. 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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    Citations

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    Cited by:

    1. Luis H. B. Braido, 2003. "Insurance and Incentives in Sharecropping," CESifo Working Paper Series 1098, CESifo.
    2. Marc F. Bellemare, 2012. "Insecure Land Rights and Share Tenancy: Evidence from Madagascar," Land Economics, University of Wisconsin Press, vol. 88(1), pages 155-180.
    3. Ndoye Niane, Aifa Fatimata & Burger, Kees & Bulte, Erwin H., 2010. "Horticultural Households Profit Optimization and the Efficiency of Labour Contract Choice," 2010 AAAE Third Conference/AEASA 48th Conference, September 19-23, 2010, Cape Town, South Africa 95776, African Association of Agricultural Economists (AAAE).
    4. Kaniska Dam, 2010. "Principal-Agent Assignment: Implications for Incentives and Income Distribution in Tenancy Relationships," Working papers DTE 495, CIDE, División de Economía.
    5. Kanidska Dam, 2015. "Incentives and Income Distribution in Tenancy Relationships," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 171(3), pages 512-543, September.
    6. Franken, Jason R.V. & Pennings, Joost M.E. & Garcia, Philip, 2012. "Measuring Risk Attitude and Relation to Marketing Behavior," 2012 Annual Meeting, August 12-14, 2012, Seattle, Washington 124471, Agricultural and Applied Economics Association.
    7. Luis H.B. Braido, 2005. "Risk and Insurance in Sharecropping," Risk and Insurance 0508002, University Library of Munich, Germany.
    8. Katrin Daedlow & Nahleen Lemke & Katharina Helming, 2018. "Arable Land Tenancy and Soil Quality in Germany: Contesting Theory with Empirics," Sustainability, MDPI, Open Access Journal, vol. 10(8), pages 1-15, August.
    9. Bellemare, Marc F., 2010. "Insecure Land Rights and Share Tenancy in Madagascar," MPRA Paper 23640, University Library of Munich, Germany.
    10. Pranab Bardhan & Dilip Mookherjee, 2007. "Land Reform And Farm Productivity In West Bengal," Boston University - Department of Economics - The Institute for Economic Development Working Papers Series dp-163, Boston University - Department of Economics.
    11. Konrad B Burchardi & Selim Gulesci & Benedetta Lerva & Munshi Sulaiman, 2019. "Moral Hazard: Experimental Evidence from Tenancy Contracts," The Quarterly Journal of Economics, Oxford University Press, vol. 134(1), pages 281-347.
    12. Mohamed Salah Matoussi & Neji Saidi, 2014. "Financial Constraints Risk Aversion and Sharecropping in Rainfed Agriculture: Application to North West Tunisia," Working Papers 880, Economic Research Forum, revised Nov 2014.

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    More about this item

    Keywords

    Econometric test; moral hazard; development; tenancy data; selection bias;
    All these keywords.

    JEL classification:

    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
    • Q15 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Land Ownership and Tenure; Land Reform; Land Use; Irrigation; Agriculture and Environment

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