Incentives, Risk, and Agency Costs in the Choice of Contractual Arrangements in Agriculture

The author develops a theory of the choice of contractual arrangements in agriculture by analyzing the incentives, risk‐premia, and agency (supervision and shirking) costs under different contracts using the principal–agent framework. The theory is able to explain many tenancy‐related issues, such as why sharecropping can be the optimal contract even in the presence of considerable shirking by the tiller, the predominance of sharecropping and of the 50*T*:*T*50 output share, the coexistence of sharecropping with other contracts, and the tenancy ladder.