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Eviction threats and investment incentives

Banerjee, Abhijit and Ghatak, Maitreesh (2003) Eviction threats and investment incentives. DEDPS, 39. Suntory and Toyota International Centres for Economics and Related Disciplines, London School of Economics and Political Science, London, UK.

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Abstract

We show that the effect of eviction threats on unobservable investment effort can be positive. We demonstrate this apparently counter-intuitive result in a model of tenancy where investment by a tenant in the current period raises the chances of doing well in the next period, and therefore retaining the job in the period after next period. If the tenant earns rents, the landlord can partly substitute eviction threats for the crop share as an incentive device. This makes it more attractive for him to elicit investment effort. However, there is a direct negative effect of eviction threats on the tenant's discount factor. We find conditions under which the former effect dominates and eviction threats can increase investment incentives.

Item Type: Monograph (Discussion Paper)
Official URL: http://sticerd.lse.ac.uk
Additional Information: © 2003 Abhijit Banerjee and Maitreesh Ghatak
Library of Congress subject classification: H Social Sciences > HB Economic Theory
H Social Sciences > HD Industries. Land use. Labor
Journal of Economic Literature Classification System: O - Economic Development, Technological Change, and Growth > O1 - Economic Development > O12 - Microeconomic Analyses of Economic Development
D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D82 - Asymmetric and Private Information
D - Microeconomics > D2 - Production and Organizations > D23 - Organizational Behavior; Transaction Costs; Property Rights
Q - Agricultural and Natural Resource Economics; Environmental and Ecological Economics > Q1 - Agriculture > Q15 - Land Ownership and Tenure; Land Reform; Land Use; Irrigation
Sets: 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/usingTheLibrary/academicSupport/OA/depositYourResearch.aspx
Identification Number: 39
Date Deposited: 07 Jul 2008 17:37
URL: http://eprints.lse.ac.uk/6643/

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