Cost‐Sharing Arrangements under Sharecropping: Moral Hazard, Incentive Flexibility, and Risk

Abstract This paper explains the rationale and describes the characteristics of cost sharing arrangements in rural developing economies, focusing on the risk and incentive properties of alternative cost contracts and on their flexibility—their ability to adapt to environmental changes. It is shown that where labor inputs are difficult to monitor, the rule that cost shares and output shares be equalized will not hold and is not “constrained pareto efficient,” and that cost‐sharing contracts have a decided advantage over contracts which specify the level of inputs whenever there are asymmetries of information regarding production technology between the landlord and the tenant.