Wage Labor, Sharecropping, and Credit Transactions

Shankar Subramanian

Oxford Economic Papers, 1995, vol. 47, issue 2, 329-56

Abstract: Linked sharecropping and credit contracts are common in less developed economies. In these the landlord provides consumption and/or production credit. This paper studies the rationale for interlinking under uncertainty and endogenous effort and the terms of the optimal contract. Unlike previous studies, it assumes that tenants participate in the labor market, which changes the mechanism by which interlinking works. It is shown that typically the consumption loan interest rate is higher than the landlord's cost of capital while production credit is subsidized. This provides a partial explanation for the wide range of interest rates observed in these contracts. Copyright 1995 by Royal Economic Society.

Date: 1995
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