Marshall Meets Lewis: Efficiency of Sharecropping in the Presence of Surplus Labor

Our paper revisits the Marshallian inefficiency but from a different perspective in the presence of surplus labor in the farm household. We investigate the (in)efficiency of sharecropping relative to owner cultivation and fixed-rent cultivation in terms of total factor productivity (TFP), which is another important departure from the existing literature. We use an unbalanced panel dataset at the farm household level consisting of 4,206 rice cultivating plots for two major rice cropping seasons in Bangladesh. Our main identification strategy is based on a controlled experiment in which we take two plots cultivated by each farm household—one owned and another rented-in, either under a sharecropping or a fixed-rent contract. After controlling for time-varying household fixed effects, season fixed effects, plot-level characteristics such as soil quality, land elevation and provision for irrigation, and shocks that might damage crops, we find that TFP is about 4.2 percent lower in sharecropping than in owner cultivation, while there is no difference between fixed-rent and owner cultivation. It is labor than capital and material inputs per unit of land that is less intensively used in sharecropping plots. The important result is that the difference in TFP and labor use between sharecropping and owner cultivation decreases with the endowment of (male) working-age members at the household and ceases to exist after a threshold (3 or more working-age male members). Explanations of the results are discussed.