Skills, Partnerships and Tenancy in Sri Lankan Rice Farms

∂ w

since —----< 0 .

^d Hs

The average products and the shadow wage are sensitive to the allocation of land across
contracts. When the landlord allocates Hs units of land to sharecroppers, he or she must equate the
marginal products of time allocated to owner-farming (Ho) and sharecropping (Hs). The labor allocation
condition implies that when labor is freed up due to land re-allocation, most of it must be assigned to
owner-farming. Therefore, as the slope equations [30] indicate, the marginal cost increases at the faster
rate than the marginal revenue because most of the re-allocated time is assigned to owner-farming, and
owner-farming thus gains relatively more from the increase in Hs. If MR=MC for some Hs, mixed-
tenancy arises with some of the land share-cropped and the remainder, owner-farmed. The sufficient
condition for the existence of sharecropping is,

MR>MC when Hs=0                                            [31]
and the sufficient condition for mixed tenancy is [31] and

MR<MC for large enough Hs                                           [32]

Using equations [27] and [28], the choice between owner-farming and fixed-rent contracts and the choice
between fixed-rents and share-rents can be analyzed in a similar way. An important difference is that an
increase in fixed-rent farming has a positive external effect on both owner-farmed and sharecropped land.
When the marginal unit of land is fixed-rented, both the time inputs Zo and Zs increase and the shadow
wage (w) converges to the market wage, u. This results in a relatively steeper slope for the marginal cost
function compared to the case illustrated in figure 1. However, the optimal time input in the fixed-rented
land, zf is not affected by the re-allocation. By easing the landlord’s time constraint, fixed rent contracts

15

<<   14   15   16   17   18   19   20   >>

More intriguing information