Revisiting the Eswaran-Kotwal model of tenancy

Ghatak, Maitreesh ORCID: 0000-0002-0126-0897 and Mookherjee, Dilip (2024) Revisiting the Eswaran-Kotwal model of tenancy. Studies in Microeconomics, 12 (1). pp. 32-58. ISSN 2321-0222

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Abstract

Persistence of sharecropping tenancy, and increases in farm productivity resulting from regulations protecting tenant rights have been observed in many developing countries. This paper examines if these can be explained by alternative models of sharecropping with two sided efforts/investments, namely, complete contract models, either without wealth constraints (Eswaran-Kotwal, 1985) or with a wealth constrained tenant (Mookherjee, 1997; Banerjee-Gertler-Ghatak, 2002), and incomplete contract holdup models without wealth constraints (Grossman Hart, 1986). In the absence of wealth constraints, the complete contract model always results in (incentive constrained) surplus-maximizing productivity; thus, there can be no scope for tenancy regulations to raise productivity. In the incomplete contract model, tenancy regulations would raise productivity only if the tenant’s investments are more important than the landlord’s investment. But in that case, sharecropping tenancy would not persist in the absence of wealth constraints, as the tenant would have purchased the land right ex ante from the landlord. The model with wealth constraints helps explain both the persistence of tenancy and the productivity/surplus enhancing effects of tenancy regulations.

Item Type:	Article
Official URL:	https://journals.sagepub.com/home/mic
Additional Information:	© 2024 The Author(s)
Divisions:	Economics
Subjects:	H Social Sciences > HB Economic Theory
JEL classification:	D - Microeconomics > D0 - General > D02 - Institutions: Design, Formation, and Operations D - Microeconomics > D2 - Production and Organizations > D23 - Organizational Behavior; Transaction Costs; Property Rights O - Economic Development, Technological Change, and Growth > O1 - Economic Development > O13 - Agriculture; Natural Resources; Energy; Environment; Other Primary Products O - Economic Development, Technological Change, and Growth > O1 - Economic Development > O12 - Microeconomic Analyses of Economic Development
Date Deposited:	08 Mar 2024 10:54
Last Modified:	03 Aug 2024 03:06
URI:	http://eprints.lse.ac.uk/id/eprint/122250

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