The piece examines how share‑tenancy contracts can function as long‑term partnerships that discourage land abuse, keep productive tenants in place, and sometimes make it optimal for landlords to pay tenants more than their reservation wage.
Key takeaways:
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The authors extend classic theories of share tenancy by explicitly modeling how tenants update their beliefs about bad harvests over time and decide whether to renew contracts or quit—and potentially abuse the land on their way out.
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Because share tenants bear only part of the loss in bad seasons, share contracts are more “resilient” than fixed‑rent contracts: it takes a larger negative shock to make quitting optimal, which helps landlords protect high‑quality land from mining and under‑maintenance.
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When losing a tenant would sharply reduce future land returns, landlords may rationally offer more generous shares or lower rents than the tenant’s outside option requires, since sharing allows them to retain the tenant at a lower expected cost than an equivalent fixed‑rent adjustment.
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,” said Mark DeWeaver.
Read the article.
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