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Revisiting the Eswaran-Kotwal Model of Tenancy

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  • Maitreesh Ghatak
  • Dilip Mookherjee

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. JEL Classifications: D02, D23, OI2, OI3

Suggested Citation

  • Maitreesh Ghatak & Dilip Mookherjee, 2024. "Revisiting the Eswaran-Kotwal Model of Tenancy," Studies in Microeconomics, , vol. 12(1), pages 32-58, April.
  • Handle: RePEc:sae:miceco:v:12:y:2024:i:1:p:32-58
    DOI: 10.1177/23210222241231700
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    References listed on IDEAS

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    1. Sugato Bhattacharyya & Francine Lafontaine, 1995. "Double-Sided Moral Hazard and the Nature of Share Contracts," RAND Journal of Economics, The RAND Corporation, vol. 26(4), pages 761-781, Winter.
    2. Abhijit V. Banerjee & Paul J. Gertler & Maitreesh Ghatak, 2002. "Empowerment and Efficiency: Tenancy Reform in West Bengal," Journal of Political Economy, University of Chicago Press, vol. 110(2), pages 239-280, April.
    3. Joseph E. Stiglitz, 1974. "Incentives and Risk Sharing in Sharecropping," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 41(2), pages 219-255.
    4. Eswaran, Mukesh & Kotwal, Ashok, 1985. "A Theory of Contractual Structure in Agriculture," American Economic Review, American Economic Association, vol. 75(3), pages 352-367, June.
    5. Pranab Bardhan & Dilip Mookherjee, 2011. "Subsidized Farm Input Programs and Agricultural Performance: A Farm-Level Analysis of West Bengal's Green Revolution, 1982-1995," American Economic Journal: Applied Economics, American Economic Association, vol. 3(4), pages 186-214, October.
    6. Hart, Oliver, 1995. "Firms, Contracts, and Financial Structure," OUP Catalogue, Oxford University Press, number 9780198288817.
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    More about this item

    Keywords

    Sharecropping; tenancy regulations; productivity; contracts; incentives;
    All these keywords.

    JEL classification:

    • D02 - Microeconomics - - General - - - Institutions: Design, Formation, Operations, and Impact
    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
    • O13 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products

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