An Asset Risk Theory of Share Tenancy

Reverse share tenancy, wherein poorer landlords rent out land to richer tenants on shares, is a common phenomenon. Yet it does not fit existing theoretical models of sharecropping and has never before been modeled in the economics literature. We explain share tenancy contracts using an asset risk model that incorporates Marshallian inefficiency and thereby provides a credible explanation for share tenancy more broadly, reverse tenancy included. When choosing the terms of an agrarian contract, the landlord considers the impact of her choice on the probability that she will retain future rights to the rented land. Thus, this model captures the effect of tenure insecurity and property rights on agrarian contracts. Among the main testable implications of the theoretical model are that, as property rights become more secure, reverse tenancy tends to disappear and that kin contracts tend to make share tenancy more likely. ∗Corresponding Author and Graduate Student, Department of Applied Economics and Management, Cornell University, Ithaca, NY, 14853, (607) 255-1578, [email protected]. We thank Clive Bell, Mike Lyne, David Just, Kei Otsuka and Bart Minten for fruitful conversations, as well as participants in seminars at Cornell University for their helpful comments. The usual disclaimer applies. †Associate Professor, Department of Applied Economics and Management, Cornell University, Ithaca, NY, 14853, (607) 255-4489, [email protected]