Abstract We extend Cheung’s (Cheung, N. S. 1969. The Theory of Share Tenancy . Chicago: University of Chicago Press.) analysis of the consequences of risk and transaction costs for agricultural contract choice by considering the potential for land abuse on the part of the tenant in a dynamic context where the land-abuse decision is linked to the tenant’s decision to renew the contract. By offering appropriate share contracts, landlords can incentivize contract renewal, thereby both lowering the incentive for land abuse and preserving the tenant’s land-specific human capital. In our model, tenants decide each period whether to terminate their contracts and abuse landlord-owned assets based on prior and updated beliefs about the likelihood of bad seasons. Share contracts are shown to be more likely than lease contracts to survive one or more bad harvests.
DeWeaver et al. (Tue,) studied this question.