Moral Hazard: Experimental Evidence from Tenancy Contracts

Konrad Burchardi (), Selim Gulesci (), Benedetta Lerva and Munshi Sulaiman

The Quarterly Journal of Economics, 2019, vol. 134, issue 1, 281-347

Abstract: Agricultural productivity is particularly low in developing countries. Output-sharing rules that make farmers less-than-full residual claimants are seen as a potentially important driver of low agricultural productivity. We report results from a field experiment designed to estimate and understand the effects of sharecropping contracts on agricultural input choices, risk-taking, and output. The experiment induced variation in the terms of sharecropping contracts. After agreeing to pay 50% of their output to the landlord, tenants were randomized into three groups: (i) some kept 50% of their output; (ii) others kept 75%; (iii) others kept 50% of output and received a lump-sum payment at the end of their contract, either fixed or stochastic. We find that tenants with higher output shares used more inputs, cultivated riskier crops, and produced 60% more output relative to control. Income or risk exposure have at most a small effect on farm output; the increase in output should be interpreted as an incentive effect of the output-sharing rule.

Date: 2019
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Citations: View citations in EconPapers (17)

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Working Paper: Moral Hazard: Experimental Evidence from Tenancy Contracts (2017)
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