Economic Theories of Share Tenancy
The theory of share tenancy was long dominated by Alfred Marshall's famous footnote in Book VI, Chapter X.14 of Principles where he illustrated the inefficiency of agricultural share-contracting. Steven N.S. Cheung (1969), challenged this view, showing that with sufficient competition and in the absence of transaction costs, share tenancy will be equivalent to competitive labor markets and therefore efficient. He also showed that in the presence of transaction costs, share-contracting may be preferred to either wage contracts or rent contracts—due to the mitigation of labor shirking and the provision of risk sharing. Joseph Stiglitz (1974, 1988), suggested that if share tenancy is only a labor contract, then it is only pairwise-efficient and that land-to-the-tiller reform would improve social efficiency by removing the necessity for labor contracts in the first place. Reid (1973), Murrel (1983), Roumasset (1995) and Allen and Lueck (2004) provided transaction cost theories of share-contracting, wherein tenancy is more of a partnership than a labor contract and both landlord and tenant provide multiple inputs. It has been also argued that the sharecropping institution can be explained by factors such as informational asymmetry (Hallagan, 1978; Allen, 1982; Muthoo, 1998 ), moral hazard (Reid, 1976; Eswaran and Kotwal, 1985; Ghatak and Pandey, 2000), intertemporal discounting (Roy and Serfes, 2001), price fluctuations (Sen, 2011) or limited liability (Shetty, 1988; Basu, 1992; Sengupta, 1997; Ray and Singh, 2001).
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