Modern slave plantations to firms and labor markets: incentive theory for a growth disaster

The reallocation of property rights at the transition from slavery to free labor in Brazil, the US South, Jamaica, among others, was followed in most cases by a sharp fall in GDP per capita. One theory for the higher productivity of slaves claims it was the coercion available to slave-owners and not to employers. A second argues that plantations were using various incentives – more food, time off etc, to get it. Loss of scale at abolition is the implied theory. In this paper, some recent theories of the firm are used to study the incentive mechanisms when effort at multiple tasks must be supervised. The model shows how wrong incentives after abolition induced former slaves to produce more peasant crops relative to the plantation staples which yielded more GDP. Suitable regulation could have induced more plantations to become firms.