Renegotiation-proof tenurial contracts as screening mechanisms

This paper is motivated by the hypothesis that the nature of the tenurial contract is sensitive to the tenant’s privately known level of farming skill. In particular, tenants with ‘low’ skill levels work for wage contracts, those with ‘high’ skill levels work for rent contracts, and tenants whose skill levels lie in between these extremes work for share contracts. We study a principal-agent type model both with and without the assumption that Ž . the parties can commit not to renegotiate the terms of the initially binding accepted contract. If the parties can make such a commitment, then our results do support this hypothesis. On the other hand, if the parties cannot make such a commitment, then, with Ž . some positive probability, tenants of all skill levels work for the same wage or share Ž . contract. However, with the complement positive probability, the hypothesis is vindicated in the no commitment case as well. q 1998 Elsevier Science B.V. All rights reserved. JEL classification: C72; D82; O12; O17; Q15