Some Rationales for Sharecropping: Empirical Evidence from Mexico

Human Organization, Spring 2005 by Colin, Jean-Philippe

These past decades, agrarian contracts such as sharecropping have re-emerged as a major focus of interest. Economists typically conceptualize these contracts as an agency relationship (in the economic sense) between large and labor-constrained landlords and landless tenants. From a methodological perspective, while acknowledging the theoretical insights of economists, this article, based on comparative case studies carried out in Mexico, suggests that understanding contractual practices depends on a comprehensive and theoretically-grounded ethnographic approach. Explaining contractual practices, actors' decision criteria are investigated rather than postulated or econometrically inferred. A detailed comparative case-study approach highlights the local diversity in contractual practices and contractual configurations. From a theoretical perspective, the paper suggests drawing upon different theoretical insights, as a single theoretical model cannot exhaust empirical diversity. The share contract emerges as a 'polyfunctional' institutional arrangement, with a large palette of possible raison d'être.

Key words: sharecropping, agrarian contract, land tenancy, Mexico

Introduction

Interest in agrarian institutions has been rising over these past decades, as an academic field of research as well as a public policy concern in developing countries (Bardhan 1989, Hayami and Otsuka 1993, de Janvry et al. 2001, Deininger and Feder 2001, World Bank 2003). Along this trend, agrarian contracts, and sharecropping more specifically, come out as a major focus of interest. Beyond their diversity, contemporary economic models of agrarian contracts share some common features (for recent reviews, see Otsuka, Chuma, and Hayami, 1992, and Dasgupta, Knight, and Love 1999):

a) While retaining the postulate of maximizing agents, these models go beyond the orthodox neoclassical approach, as they apprehend the economic rationale of contractual practices in the light of market imperfections, asymmetric information, or actors' attitude towards risk. The rationale of contractual arrangements is seen as grounded in the comparative efficiency of resource allocation under the different arrangements (share versus fixed-lease versus labor contracts).

b) Agrarian contracts are conceptualized as pure contractual arrangements, i.e., as systems of rights and duties negotiated by the actors who define, on the basis of a calculative rationality, the rules that will organize their interaction. Contractual relationships are therefore understood as rules of the games which are freely debated and determined by economic agents.

c) The paradigmatic approach of tenancy contracts is developed through bi-dimensional land/labor models, conceptualizing relationships between large and laborconstrained landlords leasing out land to landless tenants, in the context of a manual and/or draft animal labor-based farming system. The tenant-landowner relationship is conceptualized as an agency relation, in the economic sense of the expression: the contract is established between a 'principal' and an 'agent' who provides the principal with some services, through a system of remuneration designed by the principal in such a way that the agent has incentive to behave in the principal's interest. The agent is supposed to maximize his utility function through the determination of his effort. The principal maximizes his utility by manipulating the terms of the contract, his only constraint being to provide the agent with his reservation utility (i.e., the level of utility he could gain in an alternative activity, if he does not accept the contract).

Under this general framework, two broad approaches can be distinguished. The usual 'standard' agency approach of sharecropping, grounded in a substantive conception of rationality, conceptualizes this institutional arrangement as an implicit labor relationship, whose rationale comes from a trade-off between the tenant's incentive and his aversion to risk (a fixed rent corresponds to the higher labor incentive as the tenant keeps all his marginal product, but does not permit risk sharing; a labor contract transfers all the risk to the landowner, but does not provide incentives to the laborer) (Stiglitz 1974). The other broad approach corresponds to transaction cost models of sharecropping, which do not emphasize risk and consider the role of different sources of transaction costs. The type of transaction costs taken into account in these models nevertheless remain induced by moral hazard problems (transaction costs coming from nonopportunistic behavior-such as search or negotiation costs-are rarely considered). Opportunistic behavior is not limited to the tenant's work effort but it can include as well soil over-exploitation, cheating with regard to the sharing of the product, in the case of share contracts, etc. It can also originate on the side of the landowner, when he contributes to the production process by providing capital, or technical or marketing expertise. The choice between contract types is then explained by the relative weight of these agency risks, depending on the contracts and the situations (types of crops, of soils, of marketing systems, etc.), with sharecropping arising as the result of a trade-oflf between these risks. The transaction cost approach does not postulate actors' substantive rationality and refers to bounded rationality. However, it mobilizes it to explain the incompleteness of the contracts (seen as opening the way to opportunistic behavior) rather than restrictions on the actors' calculation ability or the fact that economic behavior might be guided by cognitive processes (categorization, conceptual framework for encoding and interpreting the information) (North 1990:37, Lindenberg 1998:720).