On the Structure of Tenancy Contracts: Theory and Evidence from 19th Century Rural Sicily

49 Pages Posted: 20 Nov 2001

See all articles by Oriana Bandiera

Oriana Bandiera

London School of Economics & Political Science (LSE) - Suntory and Toyota International Centres for Economics and Related Disciplines (STICERD); Centre for Economic Policy Research (CEPR); IZA Institute of Labor Economics

Date Written: October 2001

Abstract

In a world with asymmetric information, contractual terms are an important incentive device. This Paper studies the effect of crop characteristics on the choice between short-term and long-term tenancy contracts and on the choice between sharecropping and fixed-rent contracts when the production process depends on two non-contractibles: effort devoted to current production and effort devoted to plant and soil maintenance. Long-term contracts are effective in providing incentives for non-contractible maintenance investment. Since, however, incentive provision is costly, long-term contracts will be employed only when, due to the characteristics of the crop, maintenance benefits are high, or when, due to the characteristics of the tenant, the cost of providing incentives is low. The predictions of the theory are tested on a unique data set containing 705 tenancy contracts signed between 1870 and 1880 in the province of Syracuse (Sicily). The empirical evidence shows that, indeed, long-term contracts were used if the crops grown had higher maintenance needs. Other comparative static results are derived and tested empirically.

Keywords: Tenancy, rural contracts, contract duration

JEL Classification: D82, O12, O17, Q15

Suggested Citation

Bandiera, Oriana, On the Structure of Tenancy Contracts: Theory and Evidence from 19th Century Rural Sicily (October 2001). Available at SSRN: https://ssrn.com/abstract=290959

Oriana Bandiera (Contact Author)

London School of Economics & Political Science (LSE) - Suntory and Toyota International Centres for Economics and Related Disciplines (STICERD) ( email )

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Centre for Economic Policy Research (CEPR)

London
United Kingdom

IZA Institute of Labor Economics

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Germany

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