Abstract
Stiglitz's canonical
model of share tenancy not only launched principal-agency theory but serves
as a prototypical justification of government intervention in a second-best
world. The model has never survived an empirical test; indeed, the plausibility
of the model has not even been demonstrated. Closer inspection of Stiglitz's
theory reveals that his central proposition is incorrect on a priori grounds
alone. Moreover, when the model is simulated using Philippine data, high
levels of risk aversion are not associated with more reliance on sharing
and less on fixed payments as Stiglitz claims. For risk aversion beyond
moderate levels, it is just the reverse.
This compelling case against the conventional wisdom demands an alternative
theory. We suggest that the primary advantage of sharing is its resiliency
in the face of uncertainty. Rent contracts are more prone to breach and
therefore less conducive to learning-by-doing and other forms of investment.
The resiliency effect is demonstrated in a double-shirking model with Bayesian
learning.
The talk will be loosely based on two papers with Mark Deweaver, available by clicking below:
(Adobe Acrobat is required to read)