Contract choice in agriculture with joint moral hazard in effort and risk

Ghatak, Maitreesh (2000) Contract choice in agriculture with joint moral hazard in effort and risk. Journal of development economics, 63 (2). pp. 303-326. ISSN 0304-3878

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Abstract

We analyze optimal contract choice in agriculture when there is joint moral hazard on the part of the farmer in the supply of effort and the riskiness of the technique of cultivation. In the presence of limited liability, high-powered incentive contracts such as fixed rental contracts will induce the farmer to adopt techniques of cultivation that are too risky from the point of view of the landlord. On the other hand, low-powered incentive contracts such as fixed wage contracts will induce the farmer to supply too little effort. We show that sharecropping contracts emerge as a natural solution to balance these two conflicting considerations.

Item Type:	Article
Official URL:	http://www.elsevier.com/wps/find/journaldescriptio...
Additional Information:	© 2000 Elsevier Science B.V.
Uncontrolled Keywords:	sharecropping tenancy, moral hazard, risk taking, limited liability
Library of Congress subject classification:	H Social Sciences > HB Economic Theory S Agriculture > S Agriculture (General)
Journal of Economic Literature Classification System:	D - Microeconomics > D2 - Production and Organizations > D23 - Organizational Behavior; Transaction Costs; Property Rights D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D82 - Asymmetric and Private Information O - Economic Development, Technological Change, and Growth > O1 - Economic Development > O12 - Microeconomic Analyses of Economic Development Q - Agricultural and Natural Resource Economics; Environmental and Ecological Economics > Q1 - Agriculture > Q15 - Land Ownership and Tenure; Land Reform; Land Use; Irrigation
Sets:	Departments > Economics Collections > Economists Online Research centres and groups > Suntory and Toyota International Centres for Economics and Related Disciplines (STICERD)
Rights:	http://www.lse.ac.uk/library/rights/LSERO.htm
URL:	http://eprints.lse.ac.uk/35609/

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