A Dynamic Model of Contractual Choice in Tenancy

Ananish Chaudhuri ()

Departmental Working Papers from Rutgers University, Department of Economics

Abstract: Two issues in land tenure contracts in agriculture that have vexed economists are (1) the appearance and co-existence of multiple contracts, often in adjoining plots of land and (2) the choice of a share-cropping contract because a share contract being analogous to a proportional tax, is supposed to distort incentives and lead to sub-optimal use of inputs into land as well as lower levels of investment. In this paper we develop a dynamic two period model of landlord-tenant interaction in a principal-agent framework with one sided private information. The landlord has a choice of three contracts - wage, share and rent and chooses a contract so as to maximize her own pay-off. We show that under certain realistic assumptions (1) multiple contracts can co-exist over time and (2) share-cropping can arise and persist. The driving force in the model is the rate at which the agent discounts the future.

Keywords: Adverse selection; Discount rate; Principal-agent model; Share-cropping; Tenurial contracts (search for similar items in EconPapers)
JEL-codes: D82 L14 O12 (search for similar items in EconPapers)
Date: 1997-07-17
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:rut:rutres:199711

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