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Moral Hazard: Experimental Evidence from Tenancy Contracts

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  • Burchardi, Konrad
  • Gulesci, Selim
  • Lerva, Benedetta
  • Sulaiman, Munshi

Abstract

Agricultural productivity is particularly low in developing countries. Output sharing rules that make farmers less-than-full residual claimants of their produce are seen as one of the main drivers of low agricultural productivity. We report results from a field experiment designed to estimate and understand the effects of sharecropping contracts on agricultural input choices, risk-taking, and output. The experiment induced variation in the terms of sharecropping contracts. After agreeing to pay 50% of their output to the landlord, tenants were randomized into three groups: (i) some kept 50% of their output; (ii) others kept 75%; (iii) others kept 50% of output and received a lump sum payment at the end of their contract, either fixed or stochastic. We find that tenants with higher output shares utilized more inputs, cultivated riskier crops, and produced 60% more output relative to control. Income or risk exposure have at most a small effect on farm output; the increase in output should be interpreted as an incentive effect of the output sharing rule.

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  • Burchardi, Konrad & Gulesci, Selim & Lerva, Benedetta & Sulaiman, Munshi, 2017. "Moral Hazard: Experimental Evidence from Tenancy Contracts," CEPR Discussion Papers 12232, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:12232
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    9. Beg, Sabrin, 2021. "Tenancy and clientelism," Journal of Economic Behavior & Organization, Elsevier, vol. 186(C), pages 201-226.
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    More about this item

    Keywords

    Agricultural productivity; Contracts; Incentive effects; Sharecropping;
    All these keywords.

    JEL classification:

    • C93 - Mathematical and Quantitative Methods - - Design of Experiments - - - Field Experiments
    • O13 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products
    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis

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