Dangerous Liaisons on the Altiplano. Asymmetric Information, Opportunistic Behavior and Sharecropping Contracts in a Mexican Ejido

La Soledad case is illustrative of the contracting issue under conditions where reputation as an enforcement device is ineffective, and where there is no coercive power. Initially, tenancy practices were organized among local actors, on the basis of personal relationships; contractual enforcement was not a critical issue. The introduction of a new crop (potato) by ‘outsiders’ --entrepreneur-type tenants-led to dramatic changes in the configuration of contractual relationships, from now on characterized by strong informational asymmetries favoring the tenants regarding production techniques as well as the marketing system. We underline the prevalence of the entrepreneurial-tenants’ opportunistic behavior in this context, and the lack of effective enforcement and sanction mechanisms for the landlords. In such a situation, one could expect the abortion of the market for potato tenancy arrangements. That is not what is observed, though, (i) because potato is on average much more profitable than any traditional crop grown in the ejido, (ii) because ejidatarios view the risk of tenants' opportunistic behavior as the price to pay in order to benefit from the technical and economical learning, and (iii) because the potential ex post transaction costs generated by tenants’ opportunistic behavior are at least partially offset by the reduction of other transaction costs associated with direct potato growing, and economized through the tenancy arrangement. “Using contracts to try to induce cooperative behavior from an uncooperative actor is like trying to pick up mercury” Masten (1988:182) “When enforcement is costly, it may be more efficient to live with the inefficiencies generated by the moral hazard, than to try to enforce the optimal contingent contract.” Kotowitz (1987:550)