DP12232 Moral Hazard: Experimental Evidence from Tenancy Contracts

Author(s): Konrad B. Burchardi, Selim Gulesci, Benedetta Lerva, Munshi Sulaiman
Publication Date: August 2017
Keyword(s): Agricultural Productivity, Contracts, Incentive Effects, Sharecropping
JEL(s): C93, D22, O13
Programme Areas: Development Economics
Link to this Page: www.cepr.org/active/publications/discussion_papers/dp.php?dpno=12232

We report results from a field experiment designed to estimate the effects of tenancy contracts on agricultural input choices, risk-taking, and output. The experiment induced variation in the terms of sharecropping contracts: some tenants paid 50% of output in compensation for land usage; others paid 25%; again others paid 50% of output and received cash, either fixed or stochastic. We find that tenants with higher output share utilized more inputs, cultivated riskier crops, and generated 60% more output relative to control. Cash transfers did not effect farm output. We interpret the increase in output as the incentive effect of sharecropping.