On Share Contracts and Screening

Franklin Allen

Bell Journal of Economics, 1982, vol. 13, issue 2, 541-547

Abstract: It has been suggested by Hallagan (1978) and Newbery and Stiglitz (1979) that the coexistence of rent, wage, and share contracts generates information on the abilities of tenants which allows landlords to allocate resources more efficiently. It is argued here that despite the asymmetric information in their models, it is possible to achieve an efficient allocation of resources without the use of share contracts, by having tenants organize production. An alternative model is then given where efficiency cannot be achieved in this way because the quality of land as well as the ability of tenants is unobservable. In this case the use of sets of wage and share contracts may lead to an efficient outcome.

Date: 1982
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