On The Coexistence of Share, Rent and Wage Contracts In a Rural Economy

This paper attempts to explain the observed diversity of agricultural contracts within close-knit geographical regions, often within the same village. The explanation rests on two main assumptions: heterogeneity in land quality, with landlords being better informed about the quality of their own plots than prospective tenants, and moral hazard problems associated with hired labor. In the process, we also derive a sharp testable relationship between land quality and contractual form-it is predicted that best quality land will be cultivated by the owner, medium grade land will be sharecropped, and poorest quality land will be rented out on a fixed rent basis. A look at some available data largely supports this last prediction.