Moral Hazard: Experimental Evidence from Tenancy Contracts

80 Pages Posted: 29 Aug 2017 Last revised: 23 Apr 2018

See all articles by Konrad Burchardi

Konrad Burchardi

London School of Economics & Political Science (LSE)

Selim Gulesci

Bocconi University - Department of Economics

Benedetta Lerva

Bocconi University

Munshi Sulaiman

BRAC-Africa

Date Written: August 2017

Abstract

Agricultural productivity is particularly low in developing countries. Output sharing rules that make farmers less-than-full residual claimants of their produce are seen as one of the main drivers 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 utilized 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.

Keywords: Agricultural Productivity, Contracts, Incentive Effects, Sharecropping

JEL Classification: C93, D22, O13

Suggested Citation

Burchardi, Konrad and Gulesci, Selim and Lerva, Benedetta and Sulaiman, Munshi, Moral Hazard: Experimental Evidence from Tenancy Contracts (August 2017). CEPR Discussion Paper No. DP12232, Available at SSRN: https://ssrn.com/abstract=3028598

Konrad Burchardi (Contact Author)

London School of Economics & Political Science (LSE) ( email )

Houghton Street
London, WC2A 2AE
United Kingdom

Selim Gulesci

Bocconi University - Department of Economics ( email )

Via Gobbi 5
Milan, 20136
Italy

Benedetta Lerva

Bocconi University ( email )

Via Sarfatti, 25
Milan, MI 20136
Italy

Munshi Sulaiman

BRAC-Africa ( email )

Liberia

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