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Title:

Moral Hazard and Marshallian inefficiency : Evidence from Tunisia (2007)

Authors:

Jean-Louis Arcand ; Chunrong Ai ; François Ethier

In :

Journal of Development Economics (Vol. 83 N°2, July 2007)

Article on page:

pp. 411-445

Languages:

English

Descriptors:

[Eurovoc] AGRICULTURE, FORESTRY AND FISHERIES > farming systems > agricultural real estate

[Eurovoc] AGRICULTURE, FORESTRY AND FISHERIES > farming systems > type of tenure

[Eurovoc] GEOGRAPHY > Africa > North Africa > Great Maghreb > Maghreb > Tunisia

[JEL] C – Mathematical and Quantitative Methods > C1 - Econometric and Statistical Methods and Methodology: General > C13 - Estimation: General

[JEL] D - Microeconomics > D2 - Production and Organizations > D21 - Firm Behavior: Theory

[JEL] D - Microeconomics > D8 – Information, Knowledge, and Uncertainty > D82 - Asymmetric and Private Information • Mechanism Design

[JEL] O - Economic Development, Innovation, Technological Change, and Growth > O1 - Economic Development > O12 - Microeconomic Analyses of Economic Development

[JEL] O - Economic Development, Innovation, Technological Change, and Growth > O1 - Economic Development > O13 - Agriculture • Natural Resources • Energy • Environment • Other Primary Products

[JEL] Q - Agricultural and Natural Resource Economics • Environmental and Ecological Economics > Q1 – Agriculture > Q12 - Micro Analysis of Farm Firms, Farm Households, and Farm Input Markets

Tags:

moral hazard ; profit functions ; sharecropping ; Marshallian inefficiency

Abstract:

We formalize the link between optimal cost-sharing contracts and the production technology in the presence of moral hazard by appealing to several well-known results from duality theory. Building on intuitions from the interlinkage literature, we show that optimal contractual structure is determined by the (i) substitution possibilities that exist between different observable factor inputs, as well as (ii) between these inputs and unobservable effort. We endogenize contractual choice using landlord characteristics as instruments, exploiting the fact that, in our dataset, landlords interact with several tenants and vice versa. The approach is applied to an unbalanced plot-level panel of cost sharing contracts in a Tunisian village, using a translog representation of the restricted profit function. Contractual terms are found to be a significant determinant of input use and therefore lead to Marshallian inefficiency, while the optimality of the underlying contractual structure is rejected.

Doi :

DOI : 10.1016/j.jdeveco.2005.09.007

http://dx.doi.org/10.1016/j.jdeveco.2005.09.007

Axe de recherche :

Trajectoires de développement durable

Link for e-copy:

https://hal.archives-ouvertes.fr/hal-00022753

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