Share tenancy and efficiency in u.s. Agriculture

Abstract

Abstract Since the time of Adam Smith, economists have argued that share tenancy is ineffi­ cient. Because outputs are shared with the landlord, a share tenant gets only a portion of what he or she produces. Hence, the tenant does not have the incentive to culti­ vate efficiently on share-rented land and the tenant can be expected to undersupply resources [Bardhan and Srinivasan (1971), Bell and Zusman (1976), Braverman and Srinivasan (1981), Braverman and Stiglitz (1982)]. The result is Paretian inefficiency. Share tenancy, however, has survived the modem land reform era in developing as well as developed economies. This persistence has led many economists to attempt an economic explanation of share tenancy. Several have questioned the classical argument of share tenancy inefficiency. Starting by observing that if share tenancy were inefficient as claimed it would have died out, Johnson (1950) and later Cheung (1969) argued that efficiency can be achieved with effective monitoring of share tenants. Johnson argued that short-term contracts could be used to ensure that tenant farmers use resources efficiently. If the tenant does not deliver an adequate share of output to the landlord he or she may be penalized by contract termination.