Incentives, Supervision, and Sharecropper Productivity

Although sharecropping has long
fascinated economists, the determinants of this contractual
form are still poorly understood and the debate over the
extent of moral hazard is far from settled. The authors
address both issues by emphasizing the role of landlord
supervision. When tenant effort is observable, but at a cost
to the landlord, otherwise identical share-tenants can
receive different levels of supervision and have different
productivity. Unique data on monitoring frequency collected
from sharetenants in rural Pakistan confirm that,
controlling for selection, "supervised" tenants
are significantly more productive than
"unsupervised" ones. Landlords' decisions
regarding the intensity of supervision and the type of
incentive contract to offer depend importantly on the cost
of supervising tenants.