Shaban, Testing between competing models of Sharecropping

Introduction:

2 Approaches to modeling sharecropping contracts:

Marshallian Analysis: i.e. the productive inefciency of sharecropping

New School => monitoring appraoch => have suff inexpensive and effective ways of
monitoring ability to ensure that stipulation is fullled =>

Marginal product of factors is equated across lands that are owned/rented

Fundamental Difference: whether landlord can actually monitor activities of tenant effectively

This can be settled only through empirical evidence

The Viallges (i.e. Data):

Source:

Multipurpose village level studies (VLS) data collected from Economics Program of the
International Crops Research Institute for the Semi-arid Tropics (ICRISAT)

Selection of Villages:

Chosen to represent various agroclimatic zones in the semiarid tropical parts of India

2 representative villages were selcted in each district

Randomly selected panel of 30 cultivating and 10 labour households

Raw Data:

Sharecropping Contract: Land => provided by landlord; family&bullock by sharecropper

Output are usually shared equally

For simplicity, assume sharecroppers bear full cost of all variable inputs

How this study avoids common pittfalls:

Land-to-the-tiller legislation => tenancy tends to be underreported in gvt publications

This data set does not suffer from this => difcult to hid infroamtion from an investigator who
lives in the village all year round and who gains condence of people
1/5 of households involved in sharecropping
contracts
5% in xed-rent tenancy
80% of all tenants cultivate some land they own
Sharecropping dominant form of tenancy
(except for A)
Plot Value: potential sale value of plot,
including the value of the irrigation source but
excluding pumping equipment

Collected from the same person/group of

knowledgeable farmers for all plots in a
given village
Owned plots are generally better than shared
plots, which are better than plots under xed-
rent tenancy
Empirical Analysis:

Basic Idea: comparison of input intensities on owned and sharecropped lands

Framework:

Landlord choose t => size of rented area, and !, sharecroppers share

Relation between output and n variable inputs (and land)

pj is the familys shadow cost of each unit of the jth input

The Marshallian Marginal Condition is: (MR of every input is equal to the MC of that input)

=> MR in sharecropping is what it would be *!

If landlord stipulates&effectively monitors activities, margianl conditions of Fs behaviour:

(F=farmer)

Derivation: For a given piece of land, more inputs will be used on the land you actually own

(Needed to test validity of above equations)

Predictions:

Monitoring approach: would predict equal intensities on ownerd/sharecropped

Marshallian: higher input intensities per unit area on owned relative to sharecropped

Advantages of this Approach:

Comparisons are made on owned/sharecropped land of same household

No need for input and output price data => aggregated to undesireable extent

Estimated Equation:

Input intensities per unit area on owned and sharecropped plots are given by:

gi(z) => function of deterministic&stochastic variables that have identical effects of

choice of intensity of input i on owned and sharecropped plots

e.g. family-specic values of all inputs and outputs; its managerial ability etc.

Dmk and Dml are plot-specic variables => plot value, soil quality (not dummy vars)

Includes dummy variable indicating whether plot is irrigated or not

Ej => household-specic attributes that are expected to have a differential impact on

input intensities on owned and sharecropped plots

Error Terms: missing variables that affect owned and sharecropped plots differentially

Arise b/c: Some variation in sharecropping contracts across households

Assumed to be identical across all plots of same tenure status for each household

Now, the difference in weighted averages of input intensities (which is ess. what we are
after) will be given by: (t => plot areas are the weights) in percentage

A mixed owner-sharecropper cultiaves

owned and L share-cropped plots
Furthermore,
" is how much more of a certain input was invested in a
piece of land of which you are the owner;
Thus, the equation below to be estimated, using Zellners
method of estimating seemingly unrelated regressions =>
this is efcient, b/c E(v) = 0; E(v.v) = A, A is positive denite
n-dimensional matrix => this is equation (7):

Through a series of algebraic manipulations:

Null Hypothesis: => perfect monitoring

Alternative (one-sided): => Marshallian

There is a special case (i.e. assumption of equal land quality across):

Results:
So, equation above will be estimated with Zellner
Then, the pure effect of tenancy (captured by "ij) will be
carried out
Equations 7 are estimated jointly for the set of eight
observable inputs and estimated separately for
total output
With land quality differences held constant,
coefcients of village dummy variables measure the
pure effect of tenancy
Most village dummy coefcients are positive&sig:
Tend to be ones provided by households
The ones that are negative => are ones provided by
landlord => makes sense
Difference in irrigation more important than
variation in soil quality or plot value in accounting for
mean difference in average input intensities
However, even after controlling for irrigation and soil
quality differences, output intensities that are due
to sharecropping arrangmenet are quite sieabl =>
16.3% of output per acre on owned land
Percentages differentces of input intensity
(column values) due to sharecropping relative to
input intensity on own land are => %ages
Use of fertiliser is less on owned plots by 10.4%
Concludes that monitoring approach should be
rejected
Last Row: fraction of effect of contract on total input
You multiply the fraction of the difference
attributable to contract by the total percent difference
due to the total difference on input
Potential Problems for Shaban:
1. Mixed tenants could be growing different crops that also vary in tenure status

Reply 1: this creates an identication problem in general, but still provides a strong rejection
of monitoring approach, since it would be difcult to argue that landlords can mnitor input use
more easily than crop choice

Reply 2: Despite this, he still will analyse input use for a single crop (Sorghum) => most
common crop in sample (However they are mostly drawn from Shirapur and Kalman => i.e.
sample not representative any more)
2. Owner-cum-Tenants: it could be that differential behaviour is an outcome of tenancy per se:

How so?

If investments and current inputs are complements, short duration of rental contracts
implies a lower incentive to invest and consequently a lower level of current inputs

OR, if rented land is further away from farmers house than his own land, he may nd it
more costly to spend resources on rented land

How can this be disproven:

Show that those mixed tenants who own and lease land on a xed rent basis do not have
any systematic difference between application of inputs to owned/rented lands

This is exactly what he does => 90 mixed tenants of this sort

Problems with Existing Empirical Evidence (he doesnt suffer from any of these shortcomings)

Empirical Context of the Study:

Previously, he argued that in cases where there is no alternative employment for the pure
tenant and where minimum subsistence income must be provided to tenant as a
participation constraint => it is the same outcome as if landlord effectively monitors tenant

Makes sense: if you have only the one (sharecropped) piece of land, you will work it!

If what you farm is what you eat, you will farm as hard as you can, even if you get only !

Therefore, studies that test using villages with subsistence agriculture and no alternatives

Cannot discriminate between competing modeling approaches to sharecropping

Findings are consistent with both Marshallian and monitoring approaches

Output per acre is higher on owned land
relative to sharecropped land by 27.6%
This percentage difference is 31.8% family male,
32.8% family female, 16.6 bullock labour
Things to Notice:

Gross differences of average intnesities are

relatively small and show no systematic pattern

Intercept positive for 4 but negative for other 4

Intercept is not signicantly different from 0 (at

5% level)
Thus, cannot reject null-hypothesis of identical
input and output intensities on plots that ar
eowned and those that ar erented on a xed-rent
basis

Separating Sharecroppers form Fixed-Rent Tenants: certain data lumps tenants and landlords
together => these studies use district characteristics to determine which contractual arrangement
is predmoninat => but this is shit

Separating Sharecroppers from Owners:

Some studies do a black-white assignment => e.g. all mixed tenants are really only tenants

He shows that there is no satisfactory discrete or continuous method of stratifying mixed

owner-sharecroppers into owners and sharecroppers

The Statistical Test:

Other studies assume that populations (of owners/sharecroppers) are normally distributed

Then means of both populations are compared using t-statistic

However, underlying distribution can hardly be considered normal

Other studies sufffer from data limitations => e.g. do not include certain crucial inputs
Conclusion:
1. Output and input intensities per acre are higher on owned plots of a mixed sharecropped
compared with sharecropped plots
2. Differences in irrigation across tenure status are important in explaining a large fraction of
input and output differences => soil quality not that important
3. Differences in inpt and output intensities between owned and sharecropped plots are also large
and signicant when we consider plots of mixed sharecroppers with only 1 crop
4. When variation in irrigation, plot value and soil are controlled for, no systematic or signicant
difference between plots that are owned and those rented on a xed-rent basis can be detected
Thus, sizeable difference that are found in the case of sharecroppers are caused by the form of
contractual arrangement and not tennacy per se
Random bit in slides: