The (Im)possibility of Reverse Share Tenancy

Abstract

Under the usual assumption that the landlord is risk-neutral and the tenant is risk-averse, sharecropping is second-best in that it trades off risk sharing and incentives and leads to a constrained Pareto-efficient agreement. Many, however, have reported instances of reverse share tenancy, i.e., sharecropping in which the landlord is considerably poorer than the tenant. This paper shows that reverse share tenancy is impossible under the canonical model of sharecropping but becomes possible if and only if (i) both the landlord and the tenant can be assumed risk-averse; or (ii) there exist significant transactions costs making sharecropping more desirable than either a wage or fixed rent contract.

Keywords: Sharecropping, Reverse Share Tenancy, Transactions Cost

JEL Classification: D23, D86, O12, Q12