Chapter

The Rural Land Market

Pranab Bardhan and Christopher Udry

in Development Microeconomics

Published in print May 1999 | ISBN: 9780198773719
Published online November 2003 | e-ISBN: 9780191595929 | DOI: http://dx.doi.org/10.1093/0198773714.003.0006
 The Rural Land Market

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Commences with some comments on the evolution of property rights in land and on reasons for rural land markets being relatively ‘thin’; the rest of the chapter then analyzes the more active land‐lease market. First, a principal‐agent model of tenancy under uncertainty and private information is presented. It is shown how sharecropping may be used to deal with the trade‐off between risk‐sharing and incentive that arises in the presence of moral hazard. An extension of the model that allows the tenant to decide on a non‐labour input as well throws light on the ‘equal share’ rule in input costs. In the last section, a principal‐agent model with a limited liability constraint is used to study the inefficiency associated with tenancy when credit markets are imperfect and also to point to the possibility of a ‘tenancy ladder’ emerging for tenants with differing wealth constraints.

Keywords: credit markets; equal share rule; limited liability; moral hazard; principal‐agent; private information; rural land markets; sharecropping; tenancy; uncertainty

Chapter.  6801 words.  Illustrated.

Subjects: Economic Development and Growth

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