Incentives Embedded in Institutions: The Case of Share Contracts in Ghanaian Cocoa Production

ROVISION of price incentives to farmers is usually considered essential for agricultural development in Africa.An influential report of the World Bank (1981, p. 55), for example, states that "insufficient price incentives for agricultural producers are an important factor behind the disappointing growth of African agriculture."Similar emphasis on the importance of price incentives in explaining production outcomes can be seen in the literature on cocoa production in Ghana.The stagnation of cocoa production in the 1970s has been attributed mostly to the low producer prices set by the government, and the subsequent upward production trends in the 1980s and 1990s have been explained mainly by the change of price structures associated with the structural adjustment programs (World Bank 1984, p. xx; 1991a, p. 3; 1991b, p. vi;Bateman et al. 1990; Asenso-Okyere 1990, pp. 76-80; Armstrong 1996, p. 81).The proposition behind these studies is clear: African farmers are responsive to price, and providing farmers with adequate price incentives is a prerequisite for a production increase.Although this aspect of incentive is important, regarding price as the sole explanatory factor is far from satisfactory in understanding the complex realities of agricultural production in rural Africa.By analyzing the share contracts widely practiced in southern Ghana, the present study argues that local institutions such as land tenure systems and agrarian contracts also provide strong incentives and disincentives to agricultural production.This is not to deny the importance of price incentives.But such incentives need to be placed in wider incentive structures embedded in the complex interactions among local institutions. An important insight made by writers on the economics of rural organization is -------------