Another important implication of the theoretical work was that sharecropping is the best option
for unskilled tenants, i.e. they would perform much worse under a fixed-rent arrangement. We see in
Table 1 that share tenants have the lowest skill levels among the three groups. Specifically, they are 7.9%
less skilled than the fixed-rent farmers. We can use this information to compute the technical efficiency
that share-tenants can obtain if they became fixed-rent farmers using the following equation:
TEnew = TEodebSf [50]
where b is the percentage difference in skill levels and Sf is the skill level of fixed-rent tenants. With
TEold =0.5789, b= -0.079 and Sf=5.168, we find that the technical efficiency at the new skill level is
0.3848. With this level of technical efficiency, the yield of the now fixed-rented land would be 1446.31
kg/acre. This confirms our central point that, sharecropping provides the best possible arrangement
when the tenants are relatively unskilled. Although sharecroppers get 15% lower yields than fixed-
renters, these sharecroppers would get 33.5% lower yields if they engaged in fixed-rent farming. This is
because the technical efficiency will drop to 0.3848 if the same tenants obtained fixed-rent contracts. The
partnership with a skilled landlords appears to improve the performance of unskilled share tenants,
although not up to the level of fixed-rent farmers due to sub-optimal input use and some deficiencies in
technical efficiency which may both be a result of Marshallian type incentive problems.
6. Conclusions
This paper shows that share-rent and fixed-rent contracts play quite different roles in the farmers’
allocation problem. The principal-agent model presented shows that tenancy contracts are designed to
match the provision of skilled and unskilled labor tasks with the owners of time and skill inputs. Share
contracts appear to provide an incentive scheme to pool the unskilled labor of tenants with the land,
machinery and management skill of the landlords. In spite of the Marshallian inefficiency, sharecropping is
chosen when the skill levels of tenants are low enough making fixed-rent farming even less profitable.
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