Sharecropping and the Interlinking of Agrarian Markets

TLDR: In this paper, a general set of arguments applicable to both competitive and noncompetitive environments are presented, to situations where all the terms of the contract are determined in an optimal way as well as to situations when many of the terms are specified institutionally.

Abstract: One of the often noted features of less-developed agrarian economies is the existence of interlinkages among the land, labor, credit, and product markets. The landlord is often the supplier of credit; he frequently purchases and markets the output of the tenant farmers, and often sells raw materials and even consumption goods to his tenant farmers. How can this phenomenon be explained? What are the welfare consequences of attempts to restrict these practices, which often seem to constitute restraints on free trade? These are the questions to which this paper is addressed. A general set of arguments applicable to both competitive and noncompetitive environments are presented, to situations where all the terms of the contract are determined in an optimal way as well as to situations where many of the terms are specified institutionally. Section I examines interlinked credit and tenancy contracts; Section II examines interlinked marketing and tenancy contracts; Section III points out the possible interlinking between labor contracts and consumption goods markets; and Section IV presents the different equilibrium frameworks discussed in the paper, such as monopoly, monopsony, competition, and equilibria with surplus labor.