Information and the operation of markets: tests based on a general equilibrium model of land leasing in India

Abstract

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Insecurity of property rights and social matching in the tenancy market

“…Furthermore, in the last 10 years, few new households have immigrated into the communities studied here. Studies in other parts of the world find that information on attributes of others is widely available in village communities (Bardhan, 1984;Bell, 1988;and Lanjouw, 1999). Ackerberg and Botticini (2002) pointed out the importance of accounting for endogenous matching between landlords and tenants when analyzing land rental markets.…”

Implications of Agency Theory for Optimal Land Tenure Contracts

“…In contrast to the above celebrated works, Allen and Lueck (1992, 1998, 1999 and Prendergast (2002) have argued against the risk-sharing motive for contracts. Allen and Lueck argue that commodity, capital, and insurance markets are well developed in the United States, that is, all relevant contingency markets are present and better suited than land tenure contracts for transferring risk associated with production and marketing.…”

“…A parallel question of why farm operators hire labor at a fixed hourly rate of pay versus a fixed piece rate has often been considered in tandem because the conceptual issues are similar (Alston and Higgs 1982;Eswaran and Kotwal 1985;Laffont and Matoussi 1995). Share tenancy has been the dominant land tenure arrangement considered by development economists because sharecropping has tended to dominate land rental contracting in developing agriculture (Stiglitz 1974;Newberry and Stiglitz 1979;Otsuka et al 1992;Lanjouw 1999;Ackerberg and Botticini 2002;Roumasset and Lee 2003).…”

“…In developing agriculture, tenants are typically landless and poor (Otsuka et al 1992;Lanjouw 1999;Banerjee et al 2002). While the model of this article is developed with a local approximation of absolute risk aversion where utility is an expansion around expected wealth for each individual in each time period (see Just and Zilberman 1983), absolute risk aversion is assumed to be decreasing in expected wealth.…”

“…Specifically, Banerjee et al (2002) show that for 1969-76 (i.e., before special land reforms fixed the landowner's share at an artificially low rate of 25%), 90% of tenancy land in West Bengal, India, was leased with a standard contract of 50 : 50 landowner-tenant crop shares. Lanjouw (1999) reports that for Palanpur, a village in Uttah Pradesh, India, 80% of leases had standard 50 : 50 crop-share contracts in 1983. 1 In contrast, cash rental contracting has grown in popularity over time in developed agriculture, especially in the United States.…”