Partnership for Better or for Worse: Keeping Share Tenants on the Farm

The risk-bearing theory of share tenancy has been found to be inconsistent with actual tenant shares, meaning there must be additional disadvantages of lease contracts in order to explain the historical prevalence of share tenancy. One such disadvantage is that fixed-rent contracts incentivize land abuse. We complement this explanation here by providing a dynamic context in which the land- abuse decision is linked to the tenantÕs decision to renew the contract. By offering appropriate share contracts, landlords can incentivize contract renewal, thereby both lowering the incentive for land abuse and preserving the tenantÕs land-specific human capital. In our model, tenants decide each period whether to terminate their contracts and abuse landlord-owned assets based on prior and updated beliefs about the likelihood of bad seasons. Share contracts are shown to be more likely than lease contracts to survive one or more bad harvests.