Skills, Partnerships and Tenancy in Sri Lankan Rice Farms



marginal benefit (MR):


Z1


[30]


marginal cost (MC):


Z1


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 H
s units of land to sharecroppers, he or she must equate the
marginal products of time allocated to owner-farming (H
o) 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 H
s. 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 Z
o 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, z
f is not affected by the re-allocation. By easing the landlord’s time constraint, fixed rent contracts

15



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