facilitate the replacement of inefficient (in the Marshallian sense) sharecropping with first-best owner-
farming. A fixed rent contract will be chosen if the loss in average product due to skill deficiency is
outweighed by the gains due to higher time inputs in owner-farming and sharecropping.
The existence of mixed-tenancy depends on condition [32]. When Hs increases, the marginal
product of landlord’s time converges to the market wage, u. For large enough H, the landlord may be able
to achieve the optimal levels of Zo* and Zs* for some Hs. In this case, the landlord’s time allocation per unit
land and thus the average product under each arrangement is independent of land allocation choices (Hs
and Hf). As a result, he can freely re-allocate land between owner-farming, sharecropping and fixed-lease
renting without changing the time inputs Zo* and Zs*, and the optimal time input choices are separated by
the exogenous market wage, u. The straight-line segments in the MR and MC functions in figure 1 depict
this scenario. The condition [32] is then determined by the relative magnitudes of the following optimal
average product functions:
fo * = fo, ( Zf( u, S ) ), fs * = fs ( zʃ( u, v, a, S ) ) , ff = ff ( Z f ( v, s ) ) [33]
Since the landlord’s time allocation is separable and all three average revenue functions are independent of
land allocation choices Hs and Hf , equations [26]-[28] reduce to:
f,* - v.z2* + u(Zf - ZIS) > f о* [34]
ff* - vzf + uZ > f0* [35]
ff - vz '*f + uZ l*s > fs* - v . z 2S [36]
The choice between owner-farming and sharecropping now depends only on the relative market wage and
the output share. Specifically, owner farming is preferred to sharecropping if the opportunity cost of using
the landlord’s time for unskilled labor is smaller than enforcement costs associated with sharecropping.
Owner farming is preferred to fixed rent farming if the opportunity cost of using landlord’s time is smaller
than the gains from using landlord’s farming skills. In addition, if skills are relatively more important to
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