1/ We put an old question to an experimental test: How much does agricultural output fall when output sharing rules make the farmer less-than-full residual claimant? We find that farmers with a 75% share in output produce 60% more output than farmers with a 50% share in output.
2/ Second, we find that farmers with a 75% share use more inputs, both capital and labor, and take on more risk. Under plausible assumptions about the returns to inputs and risk-taking, these changes fully account for the increase in output, each factor contributing about half.
3/ Third, increasing the farmers’ share from 50% to 75% (controlling for selection) has an incentive effect, an income effect, and a risk-exposure effect. We find that the 60% increase of output is a lower bound on the size of the incentive effect. We find no income effect.
4/ In interpreting these findings it should be kept in mind that returns to agricultural decisions are difficult to estimate with data from few season (see Rosenzweig and Udry, 2018) and our experiment was run amongst a selected group of young, female tenant farmers in Uganda.
5/ Fact #1: The history of economics thought of this work goes back to Alfred Marshall who provided in his 1890 `Principles of Economics’ the first quantitative theory of the incentive effects of output sharing rules, a precursor to modern microeconomic theory:
6/ `For, when the cultivator has to give to his landlord half of the returns to each dose of capital and labor that he applies to the land, it will not be to his interest to apply any doses the total return to which is less than twice enough to reward him.’(Book VI, Chapter X.14)
7/ Fact #2: We submitted on the 10/4, received a R&R with 3 excellent referee reports on the 24/5, re-submitted on the 17/8, and the paper was accepted on 7/9, 150 days after the initial submission. Thanks @QJEHarvard, Andrei Shleifer and referees for being so fast and helpful!
