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Eviction threats and investment incentives

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  • Banerjee, Abhijit
  • Ghatak, Maitreesh

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.

Suggested Citation

  • Banerjee, Abhijit & Ghatak, Maitreesh, 2003. "Eviction threats and investment incentives," LSE Research Online Documents on Economics 6643, London School of Economics and Political Science, LSE Library.
    • Handle: RePEc:ehl:lserod:6643
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    References listed on IDEAS

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    More about this item

    Keywords

    Sharecropping tenancy; eviction threats; investment incentives;
    All these keywords.

    JEL classification:

    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • Q15 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Land Ownership and Tenure; Land Reform; Land Use; Irrigation; Agriculture and Environment

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