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Credit rationing, tenancy, productivity, and the dynamics of inequality

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  • Braverman, Avishay
  • Stiglitz, Joseph E.

Abstract

Why, when given the same resources, might productivity be lower on farms operated through sharecropping than on owner-run farms? The reason is that sharecropping, much less wage contracts, cannot overcome the divergence of interests between those who till the land and those who own it. Only land redistribution can do that. This paper presents notes toward a general equilibrium theory of land tenancy that suggest how changes in technology and publicly provided infrastructure can affect the equilibrium distribution of land in countries where credit is rationed. When credit to famers is rationed, changes in technology can increase the inequality in landholdings - with a long term increase in share tenancy. This is turn might reduce productivity, at least partially offsetting the initial improvements. The paper suggests that the development of effective rural financial institutions would reduce the likelihood of these negative effects on equality and productivity. It further cautions though that past attempts in creating such institutions have failed because of a lack of accountability and of enforcement procedures.

Suggested Citation

  • Braverman, Avishay & Stiglitz, Joseph E., 1989. "Credit rationing, tenancy, productivity, and the dynamics of inequality," Policy Research Working Paper Series 176, The World Bank.
    • Handle: RePEc:wbk:wbrwps:176
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    References listed on IDEAS

    as
    1. Stiglitz, J.E., 1988. "Sharecropping," Papers 11, Princeton, Woodrow Wilson School - Discussion Paper.
    2. Bruce C. Greenwald & Joseph E. Stiglitz, 1986. "Externalities in Economies with Imperfect Information and Incomplete Markets," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 101(2), pages 229-264.
    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. Braverman, Avishay & Guasch, J. Luis, 1986. "Rural credit markets and institutions in developing countries: Lessons for policy analysis from practice and modern theory," World Development, Elsevier, vol. 14(10-11), pages 1253-1267.
    5. Braverman, Avishay & Srinivasan, T. N., 1981. "Credit and sharecropping in agrarian societies," Journal of Development Economics, Elsevier, vol. 9(3), pages 289-312, December.
    6. Stiglitz, Joseph E & Weiss, Andrew, 1981. "Credit Rationing in Markets with Imperfect Information," American Economic Review, American Economic Association, vol. 71(3), pages 393-410, June.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Wendy Olsen, 2006. "Pluralism, poverty and sharecropping: Cultivating open-mindedness in development studies," Journal of Development Studies, Taylor & Francis Journals, vol. 42(7), pages 1130-1157.
    2. Wendy Olsen & University of Manchester, 2005. "Pluralism, Poverty and Sharecropping: Cultivating Open-Mindedness in Development Studies," Economics Series Working Papers GPRG-WPS-008, University of Oxford, Department of Economics.
    3. Joseph E. Stiglitz, 2015. "New Theoretical Perspectives on the Distribution of Income and Wealth among Individuals: Part II: Equilibrium Wealth Distributions," NBER Working Papers 21190, National Bureau of Economic Research, Inc.
    4. Partha Dasgupta, 1998. "The Economics of Poverty in Poor Countries," STICERD - Development Economics Papers - From 2008 this series has been superseded by Economic Organisation and Public Policy Discussion Papers 09, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
    5. Kochar, Anjini, 1997. "An empirical investigation of rationing constraints in rural credit markets in India," Journal of Development Economics, Elsevier, vol. 53(2), pages 339-371, August.
    6. Wendy Olsen, 2008. "Pluralism, Tenancy and Poverty: Cultivating Open-Mindedness in Poverty Studies," Working Papers id:1684, eSocialSciences.
    7. Zimmerman, Frederick J. & Carter, Michael R., 2003. "Asset smoothing, consumption smoothing and the reproduction of inequality under risk and subsistence constraints," Journal of Development Economics, Elsevier, vol. 71(2), pages 233-260, August.
    8. Campero Alejandra & Kaiser Karen, 2013. "Access to Credit: Awareness and Use of Formal and Informal Credit Institutions," Working Papers 2013-07, Banco de México.
    9. Ranjula Bali Swain, 2002. "Credit Rationing In Rural India," Journal of Economic Development, Chung-Ang Unviersity, Department of Economics, vol. 27(2), pages 1-20, December.
    10. Dasgupta, Partha, 1997. "Nutritional status, the capacity for work, and poverty traps," Journal of Econometrics, Elsevier, vol. 77(1), pages 5-37, March.
    11. Joseph E. Stiglitz, 2015. "New Theoretical Perspectives on the Distribution of Income and Wealth among Individuals: Part IV: Land and Credit," NBER Working Papers 21192, National Bureau of Economic Research, Inc.

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