Moral Hazard: Experimental Evidence from Sharecropping Contracts

Agricultural productivity in developing countries is notoriously low. Increasing agricultural productivity is considered a key challenge in order to both ensure food security, and alleviate rural poverty. One of the most commonly cited explanations for low agricultural productivity is the prevalence of sharecropping arrangements, i.e. tenancy agreements in which the tenant receives a relatively low fraction of the agricultural output as a compensation for his efforts. Since tenants do not reap all the fruits of their labour, these agreements have long been suspected to induce tenants to be less likely to adopt profitable technologies or purchase costly inputs as for example fertilizers and labour for the cultivation of this land, and hence lead to lower agricultural productivity. Despite the persuasiveness of these arguments on theoretical grounds, empirical evidence on the potential magnitude of these effects is still scarce.

In this project, we ​are providing empirical evidence on the effects of share cropping contracts for agricultural output and productivity. To this end we have partnered with BRAC to conduct a field experiment in Uganda. As part of it's operations BRAC is leasing land to young female farmers and encouraging them to adopt non-standard crop varieties. We induce random variation in the contract structure under which the land is let to these women: some women are allowed to keep 50% of their output, others are allowed to keep a higher share. The experiment is further designed to understand the response of the farmer to a higher share, and disentangle incentive effects from income effects and changes in behaviour stemming from risk attitudes. Taken together the results from this experiment will allow us to judge how big the detrimental effects of share-cropping contracts are, and make out of sample predictions about the consequences of alternative contractual set-ups and policy reforms.