Moral hazard, land fertility and sharecropping in a rural area of the Philippines

Abstract

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Incomplete Contracts And Investment : A Study Of Land Tenancy In Pakistan

“…So, we do not seem to be in a world of no commitment. Meanwhile, the average effect of leasing on investment does not change appreciably after accounting for tenancy duration, remaining strongly significant in both rows (6) and (7).…”

“…First, adverse selection may arise when a component of plot fertility is private information to the landowner, in which case less fertile plots would tend to be leased out rather than owner-cultivated. Second, moral hazard on the part of the tenant would have a similar effect if more fertile plots are more sensitive to soil degradation (see Dubois, 2002, for a tenancy model along these lines). Endogeneity bias induced by the correlation between L ci and ∆ε c can be tackled using instrumental variables.…”

“…We use instrumental variables to address this endogeneity problem; in particular, using information on the owner of each cultivated plot, which we have even if the plot is leased. 7 The next section of the paper provides the context for our study and sets out a simple two-period model of tenancy, moral hazard, and land-specific investment. Section 3 describes the estimation strategy, develops the identification argument, and provides evidence on the determinants of tenancy duration.…”

Altruism, moral hazard, and sharecropping

“…The share contract can emerge as a solution to balance the tenant's effort supply and risk choice. Dubois (2002) considers the role of land fertility in the determination of the optimal contract. The contractual choice depends on the trade-off between the possibility of the land overuse and its fertility.…”

An organizational economics approach to the existence of sharecropping

“…The second direction centres on self-selection effects, which holds that sharecropping results from the adverse selection problem (Hallagan 1978;Allen 1982). The third direction concentrates on moral hazard, which stresses that sharecropping is a relatively effective measure to deal with the opportunistic problem on the part of the landlord or the tenant or both of them (Eswaran and Kotwal 1985;Laffont and Matoussi 1995;Agrawal 1999;Ghatak and Pandey 2000;Dubois 2002). The fourth direction puts emphasis on the role of limited liability in determining the existence of sharecropping (Basu 1992;Sengupta 1997;Ray and Singh 2001;Dam and Perez 2012).…”