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Quarterly Journal of Economics Vol. 134 No. 1 2019

Moral Hazard: Experimental Evidence from Tenancy Contracts*

Konrad Burchardi1; Selim Gulesci2; Benedetta Lerva3; Munshi Sulaiman4

1 Institute for International Economic Studies, Stockholm University; Bureau for Research and Economic Analysis of Development; and Centre for Economic Policy Research · 2 Innocenzo Gasparini Institute for Economic Research and Laboratory for Effective Anti-Poverty Policies, Bocconi University; Centre for Economic Policy Research · 3 Institute for International Economic Studies (Stockholm University) · 4 BRAC Institute of Governance and Development

open access

Abstract

Agricultural productivity is particularly low in developing countries. Output-sharing rules that make farmers less-than-full residual claimants are seen as a potentially important driver 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 used 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.

DOI
10.1093/qje/qjy023
Volume
134
Issue
1
Pages
281-347
Language
en
Sources
bibtex:phds-export.bib openalex crossref

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