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The theory of share tenancy
01 Jan 1969-
About: The article was published on 1969-01-01 and is currently open access. It has received 517 citations till now. The article focuses on the topics: Resource allocation & Leasehold estate.
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8,910Â citations
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01 Jan 19741,386Â citations
TL;DR: In this article, the authors formulate a simple general equilibrium model of a competitive agricultural economy, based on the risk sharing and incentive properties of alternative distribution systems, which is of interest not only for extending our understanding of these simple economies but also in gaining some insight into the far more complex phenomena of shareholding in modern corporations.
Abstract: At least from the time of Ricardo, economists have begun their investigations of how competitive markets work, how wages, rents and prices are determined, by a detailed examination of agriculture. Even today, agriculture is taken as the paradigm-and perhaps almost the only important example-of a truly competitive market (or at least this was the case until the widespread government intervention in this market). For a number of years I have been concerned with how competitive markets handle risk taking, and how risk affects real resource allocation. Risks in agriculture are clearly tremendously important, yet remarkably the traditional theoretical literature has avoided explicit treatment 3 of risk sharing in agricultural environments. The consequences of this are important. First, it makes suspect the traditional conclusions regarding sharecropping. Is it really true that sharecropping results in too low a supply of labour, because workers equate their share of output times the (value of the) marginal productivity of labour to the marginal disutility of work, whereas Pareto optimality requires the (value of the) marginal productivity of labour be equal to the marginal disutility of work? Or is it true, as Wicksell asserted, that there is no distincion between landlords hiring labour or labour renting land? Second, it leaves unanswered many of the important economic questions. How is the equilibrium share determined? Why have some economies (in the past or at present) used one distribution system, other economies used others? Our object is to formulate a simple general equilibrium model of a competitive agricultural economy. (Other general equilibrium models of competitive economies with uncertainty have been formulated by Arrow [2] and Debreu [9], Diamond [10], and Stiglitz [14]. Each of these has its serious limitations in describing the workings of the modern capitalist economy. (See Stiglitz [15]).) The model is of interest not only for extending our understanding of these simple economies but also in gaining some insight into the far more complex phenomena of shareholding in modern corporations. Our focus is on the risk sharing and incentive properties of alternative distribution systems. The analysis is divided into two parts. In the first, the amount of labour (effort) supplied by an individual is given, and the analysis focuses on the risk sharing aspects of
1,223Â citations
TL;DR: In this article, the authors provide an empirical assessment of various agency-theoretic explanations for franchising, including risk sharing, one-sided moral hazard, and two-sided Moral Hazard.
Abstract: This article provides an empirical assessment of various agency-theoretic explanations for franchising, including risk sharing, one-sided moral hazard, and two-sided moral hazard. The empirical models use proxies for factors such as risk, moral hazard, and franchisors' need for capital to explain both franchisors' decisions about the terms of their contracts (royalty rates and up-front franchise fees) and the extent to which they use franchising. In this article, I exploit several new sources of data on franchising to construct a cross section of 548 franchisors involved in various business activities in the United States in 1986. The data are most consistent with a model based on two-sided moral hazard. The empirical models are also more successful at explaining the extent to which franchisors choose to franchise stores than at explaining the terms of franchise contracts. Finally, contrary to the predictions of several theoretical models, I find that royalty rates and franchise fees are not negatively related.
1,191Â citations
Cites background from "The theory of share tenancy"
...Risk sharing was first proposed in the 1960s by Cheung (1969) to explain the existence of sharecropping....
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TL;DR: The authors view a social system as relying on techniques, rules, or customs to resolve conflicts that arise in the use of scarce resources rather than imagining that societies specify the particular uses to which resources will be put.
Abstract: Economics textbooks invariably describe the important economic choices that all societies must make by the following three questions: What goods are to be produced? How are these goods to be produced? Who is to get what is produced? This way of stating social choice problems is misleading. Economic organizations necessarily do resolve these issues in one fashion or another, but even the most centralized societies do not and cannot specify the answer to these questions in advance and in detail. It is more useful and nearer to the truth to view a social system as relying on techniques, rules, or customs to resolve conflicts that arise in the use of scarce resources rather than imagining that societies specify the particular uses to which resources will be put.
1,155Â citations