Skills, Partnerships and Tenancy in Sri Lankan Rice Farms

rent and share-rent tenants. When Hs and Hf are changed, the landlord’s net income changes if the
average products of each type of tenancy are different. In addition, equations [25] show that the re-
allocation itself could cause the average products under each contract to change by changing the
intensities of landlord’s time inputs in owner-farmed and sharecropped land. The equations for landlord’s
choice between each pair of contract can be derived by taking the first order conditions of equation [21]
with respect to Hs and Hf with appropriate restrictions on land allocation constraint (given in [18] ). Land
is allocated from owner-farming to sharecropping (fixed-rents held constant) if ,

f_s ( Z1₅, z2 s ; S) - v. z2 s + w( Zo - Z1 s ) > fо (Zo ; S)                           [26]

From owner-farming to fixed-rent leasing (share-rents held constant) if,

/f.*( z f ; s ) - vz } + w Z > f 0 ( Zo ; S )                             [27]

and from share-cropping to fixed-rent farming (owner-farming held constant) if,

^f/^{( z} f ;^s )^{- vz} f ^{+ wZ 1} s > ^fs^{( z 1} s^{, z 2} s ; ^s )^{- v}.^{z 2} s                     ^[28]

where _w = u +A= 4^ff~ = 4^fΓ~                                [29]

σ Z σ Z

os

These choice equations tell us that the gains from re-allocation include the value of the labor that
is freed up due to the re-allocation in addition to the net gain in income when the parcel is allocated
between two contracts with different average products. The left hand and right hand sides of equations
[26]-[28] can be interpreted as the marginal revenue and marginal cost of the re-allocation respectively.
For the re-allocation from owner-farming to sharecropping [26], the first two terms of marginal benefit
represent the average product of sharecropped land net of the opportunity cost of the tenant’s time
evaluated at the market wage. The third terms depicts the value of landlord’s time freed due to the re-
allocation evaluated at the marginal product of the landlord’s time. The marginal cost, on the other hand,
is the average product under owner-farming. Figure 1 illustrates the marginal revenue and cost as a
function of the proportion of sharecropped land (Hs/H). The slopes of these functions are:

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