Sharecropping In Developing Countries

INTRODUCTION

Sharecropping is a popular type of agricultural land contracts in which a tenant and a landowner share the final yields without corresponding sharing rates of all inputs. The existence of sharecropping has long remained an economic puzzle. Sharecropping literature has a relatively clear division between theoretical frameworks and empirical analyses. The former focuses on explaining the emergence and popularity of this contract, considering sharecropping as a screening or risk sharing device, a mean to overcome liquidity constraint, two-sided market failures and so on. By contrast, much of the empirical analysis pays attention on the debate of sharecropping impacts on farming output and the labour underprovision.

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In the static framework, they are (i) insurance (Stiglitz, 1974; Newbery an Stiglitz, 1976), (ii) managerial and entrepreneurial effort (Rao, 1971; Prendergast, 2002), (iii) labour market imperfections (Hallagan, 1978; Otsuka et. al., 1992; Ray, 1999); (iv) transaction costs (Williamson, 1979; Murrel, 1983), (v) financial constraints (Laffont and Matoussi, 1995; Ghatak and Pandey, 2000). Moving to the dynamic framework, some long term aspects of contracts are formalized. Specifically, they include eviction threats (Banerjee and Ghatak, 2004), history dependence properties of contracts (Lambert, 1983; Rogerson, 1985) and dynamics of soil fertility (Dubois, 2001). Though these theories employ different arguments, there appears a consensus that sharecropping is the second-best optimal solution which does not induce the maximum yields. However, this contract can be necessary as a solution of the tradeoff between working incentives and risk sharing or dynamics of fertility and other market imperfections. In Chapter one, we review some of those

Theoretically, land reform is a win-win strategy, expanding the pie - efficiency while improving equity. The 1975 revolution and 1991 institutional reform accompanied by two subsequent land and tenancy reforms have been often claimed to promote equity by the authorities. Previous studies, examining the agricultural system in Ethiopia, show that the equity objective was not achieved in the 1990s, evidencing by increasing number of landless and sharecroppers and consequently, the increasing dominance of the 50:50 share against the conventional 67:33. In complement, our study will show that not the efficiency gains obtained but there exists the significant efficiency loss at least within the group of sharecropping tenants. Moreover, the analysis also shows that agricultural efficiency may be achieved even with the widespread presence of sharecropping through providing a more incentive sharing rule, which, in our study, is the critical threshold of 67:33. Of course, imposing this bound on the sharing rules is not easy even with political