on the fixed nature of sharecropping contracts newbery and stiglitz i979 suggest four stylised facts of sharecropping which theories should attempt to explain the first is the persistence of sharecropping and its coexistence with fixed rental and wage markets under a variety of conditions over centuries of time the second is that in modern developed economies there appears to be a decline in share tenancy thirdly share tenancy is often but not alwavs associated with lower productivity than fixed rental land finally in many economies contracts involve shares of around one half for landlord and tenant this does not vary from contract to contract and does not seem to be the object of negotiation smith i776 and many subsequent authors have likened sharecropping to a tax they argue that under this type of contract tenants choose their labour supply to equate their marginal disutility of labour with their proportionate share of the marginal product instead of the full marginal product they therefore regard sharecropping as an inefficient form of land tenure however this view is difficult to reconcile with the first observation given the coexistence of fixed rent and share contracts it is reasonable to expect that if share contracts were relatively inefficient they would quickly die out this does not appear to have happened more recently it has been argued most notably by cheung i969 that if there is certainty and transactions costs are the same for all contracts then provided a share contract specifies the labour supply of the tenant it leads to the same efficient allocation of resources as a fixed rent or wage contract cheung has used this result as the basis of an explanation for coexistence he suggests that the transaction costs for share contracts are higher than for wage and fixed rent contracts however share contracts have the advantage that they allow the risk to be shared between the landlord and tenant whereas with fixed rent contracts the tenant bears all the risk and with wage contracts the landlord does given varying degrees of risk aversion among landlords and tenants it is possible that for some parties the risk sharing advantages outweigh the transaction cost disadvantages so that they will prefer share contracts whereas with others the reverse is true one problem with this argument raised by stiglitz i974 and newbery i977 is that given constant returns to scale the risk sharing properties of share contracts can be attained with mixtures of fixed rent and wage contracts if these do indeed have lower transaction costs share contracts would not then be observed

group lending repayment incentives and social collateral abstract in this paper we investigate the impact on repayment rates of lending to groups which are made jointly liable for repayment this type of scheme especially in the guise of the grameen bank in bangladesh has received increasing attention we set up and analyze the repayment game which group lending gives rise to our analysis suggests that such schemes have both positive and negative effects on repayment rates the positive effect is that successful group members may have an incentive to repay the loans of group members whose projects have yielded insufficient return to make repayment worthwhile the negative effect arises when the whole group defaults even when some members would have repaid under individual lending we also show how group lending may harness social collateral which serves to mitigate its negative effect

credit market constraints consumption smoothing and the accumulation of durable production assets in low income countries investments in bullocks in india in this paper we formulate and estimate a finite horizon structural dynamic model of agricultural investment behavior that incorporates the major features of low income agricultural environments income uncertainty constraints on borrowing and rental markets and the use of investment assets to generate income and smooth consumption the model is fit to longitudinal indian household data on farm profits bullock stocks and pump sets the estimated structural parameters are used to assess the effects on the life cycle accumulation of bullocks agricultural profits and welfare associated with complete markets and bullock liquidity and with second best policies that provide assured sources of income to farmers and weather insurance

pricing risk adjusted deposit insurance an option based model this paper presents a methodology for arriving at empirical estimates of deposit insurance premiums from market data by using isomorphic relationships betweeen equity and a call option and insurance and a put option the data utilizes the market value of equity to solve for the asset value and its volatility market perceptions of fdic bailout policies are explicitly modeled so as to eliminate the bias in inverted values of assets and their volatility sensitivity analyses are performed to show that rank orderings based on premiums are robust to changes in specification thus facilitating allocation of aggregate premium across banks while economists have long argued in favor of risk adjusted deposit insurance as both more equitable and more efficient than the current system of flatrate premiums various recent developments have further contributed to an increasing dissatisfaction with the current system first both the banking industry and the government seem to be tending to the view that deregulation of the banking industry would be necessary in order to meet more sophisticated future demands on the industry as well as desirable as a policy means of stimulating greater competition among banks moreover a sudden rise in the incidence of bank failures 1 and the vulnerability of the u s banks to the socalled international debt crisis have served to bring to the fore concern about the health of the banking industry in the absence of deposit insurance riskier banks will be able to attract deposits only at higher rates and these higher costs of funding serve as built in market regulated incentives to limit excessive risk taking by banks as introduction of deposit insurance makes deposits equally risk free across banks these incentives disappear and regulation and close supervision of the banking industry must necessarily replace them as deterrents to excessive risk taking thus when insurance is offered at a flat premium regulation is designed to ensure that the risk posed to the insurer both asset and financial risk is appropriately uniform

does the european financial stability facility bail out sovereigns or banks an event study on may 9 2010 euro zone countries announced the creation of the european financial stability facility this paper investigates the impact of this announcement on bank share prices bank credit default swap cds spreads and sovereign cds spreads the main private beneficiaries were bank creditors furthermore countries with banking systems heavily exposed to southern europe and ireland benefited as evidenced by lower sovereign cds spreads the combined gains of bank debt holders and shareholders exceed the increase in the value of their banks sovereign debt exposures suggesting that banks saw their contingent claim on the financial safety net increase in value

risk and insurance in a rural credit market an empirical investigation in northern nigeria credit contracts play a direct role in pooling risk between households in northern nigeria repayments owed by borrowers depend on realizations of random shocks by both borrowers and lenders the paper develops two models of state contingent loans the first is a competitive equilibrium in perfectly enforceable contracts the second permits imperfect information and equilibrium default estimates of both models indicate that quantitatively important state contingent payments are embedded in these loan transactions but that a fully efficient risk pooling equilibrium is not achieved the research is based on a year long survey in zaria nigeria conducted by the author

rationing and adjustment in the market for tenancies the behavior of landowning households in thanjavur district a large proportion of peasants cultivate only their own land even when there are active markets for tenancies as well as labor however rationing of tenancies can occur under moral hazard or adverse selection a model that includes as possible outcomes both rationing and full adjustment through trading is analyzed and estimated using data from south india on this basis households can be characterized as rationed or adjusted and confidence intervals for these assignments can be calculated while some households achieved full adjustment a majority were rationed in the tenancy market many of them completely

capital requirements screening and interlinked sharecropping and credit contracts this paper provides one more rationale for interlinking credit and tenancy contracts in the context of production loans in an environment characterized by a heterogeneous labor pool and imperfect information landlords will have an incentive to avail themselves of screening devices by linking tenancy and credit contracts a screening device can be implemented the equilibrium set of contracts is characterized by a variety of interest rates some of which might be below the market interest rate the interest rate principal schedule is downward sloping with higher ability tenants choosing larger principals at lower interest rates

optimal taxation without state contingent debt in an economy studied by lucas and stokey tax rates inherit the serial correlation structure of government expenditures belying barro s earlier result that taxes should be a random walk for any stochastic process of government expenditures to recover a version of barro s random walk tax smoothing outcome we modify lucas and stokey s economy to permit only risk free debt having only risk free debt confronts the ramsey planner with additional constraints on equilibrium allocations beyond one imposed by lucas and stokey s assumption of complete markets the ramsey outcome blends features of barro s model with lucas and stokey s in our model the contemporaneous effects of exogenous government expenditures on the government deficit and taxes resemble those in lucas and stokey s model but incomplete markets put a near unit root component into government debt and taxes an outcome like barro s however we show that without ad hoc limits on the government s asset holdings outcomes can diverge in importa

dueling policies why systemic risk taxation can fail abstract two policy instruments for the banking sector are investigated namely systemic risk taxation and constructive ambiguity about bailout policy bailout expectations can induce moral hazard in the form of excessive risk taking by banks systemic risk taxation induces banks to prefer uncorrelated investments leading to lower systemic risk formation constructive ambiguity generates uncertainty about bailout prospects however systemic risk taxation also may inform banks about the regulator s concern for financial stability and thereby its bailout policy this result leads to a trade off between systemic risk taxation and constructive ambiguity and highlights the need to consider interdependence across policies when evaluating their effectiveness

learning by doing and learning from others human capital and technical change in agriculture household level panel data from a nationally representative sample of rural indian households describing the adoption and profitability of high yielding seed varieties hyvs associated with the green revolution are used to test the implications of a model incorporating learning by doing and learning spillovers the estimates indicate that i imperfect knowledge about the management of the new seeds was a significant barrier to adoption ii this barrier diminished as farmer experience with the new technologies increased iii own experience and neighbors experience with hyvs significantly increased hyv profitability and iv farmers do not fully incorporate the village returns to learning in making adoption decisions

household resources transaction costs and adjustment through land tenancy this paper examines the role of household endowments of imperfectly tradeable factors of production e g male female child labor and draft animals on land leasing an explicit attempt is made to account and test for the role of transaction costs on the incidence and extent of adjustment taking place through the land lease market the econometric model is implemented using pooled data from six villages in the semiarid region of india the results confirm the significant role of nontradeable family endowments and indicate the presence of frictions in the land tenancy market

sharecropping in a north indian village this article presents a case study of sharecropping in a north indian village drawing on a detailed survey of tenancy relations in the village it examines a number of issues that have received prominent attention in the literature including the motives for tenancy the choice of tenancy contract the rationale for equal shares the relationship between tenant and landlord the efficiency of sharecropping and interlinkage the wider implications of this case study are also discussed

testing between competing models of sharecropping the marshallian approach assumes a prohibitively high cost of monitoring the sharecropper s activities while the monitoring approach argues that landlords stipulate and effectively monitor sharecroppers activities i present new evidence using detailed data collected from eight indian villages most tenants own some land of their own this provides a controlled environment in studying the impact of contractual arrangements the differences in input and output intensities on owned minus sharecropped land of the same household are found to be sizable and significant suggesting a rejection of the monitoring approach and supporting the notion of the marshallian productive inefficiency of sharecropping

tariffs transfers and the real exchange rate the deviation of exchange rates from purchasing power parities ppp s has recently become the subject of theoretical and empirical attention the massive body of data collected and presented by the international comparisons project icp under the direction of kravis heston and summers khs 9 11 has permitted new empirical investigation of an old topic and has stimulated the construction of theoretical models to account for observed patterns in the icp project and the related literature the focus is on the ratio of the exchange rate to the ppp the concept of this ratio is closely related to the concept of the real exchange rate which is defined as the actual exchange rate multiplied by the ratio of an index of foreign prices to an index of domestic prices the term real exchange rate a term widely employed in both economics journals and in the financial press is frequently used to describe changes over time in a particular country and its calculation requires only time totime changes in exchange rates and price indexes the ratio of the exchange rate to the ppp on the other hand refers to a comparison of the levels of the exchange rate and the ppp at a moment in time and its calculation requires the availability of a ppp survey of the kind performed by the icp the purpose of the present paper is to analyze the effects of tariffs and transfers on the real exchange rate of a small country in this theoretical endeavor we shall hold constant the prices in foreign countries in this context it can easily be seen that the real exchange rate and the ratio of the exchange rate to the ppp are identical concepts provided that the expenditure weights used in the index of domestic prices are the same as those used in the calculation of the ppp

optimal fiscal and monetary policy in an economy without capital abstract this paper is concerned with the structure and time consistency of optimal fiscal and monetary policy in an economy without capital in a dynamic context optimal taxation means distributing tax distortions over time in a welfare maximizing way for a barter economy our main finding is that with debt commitments of sufficiently rich maturity structure an optimal policy if one exists is time consistent in a monetary economy the idea of optimal taxation must be broadened to include an inflation tax and we find that time consistency does not carry over an optimal inflation tax requires commitment by rules in a sense that has no counterpart in the dynamic theory of ordinary excise taxes the reason time consistency fails in a monetary economy is that nominal assets should from a welfare maximizing point of view always be taxed away via an immediate inflation in a kind of capital levy this emerges as a new possibility when money is introduced into an economy without capital

an options based approach to evaluating the risk of fannie mae and freddie mac abstract fannie mae and freddie mac assume a significant amount of interest and prepayment risk and all of the credit risk for about half of the 8 trillion u s residential mortgage market their hybrid government private status and the perception that they are too big to fail make them a potentially large but largely unaccounted for risk to the federal government measuring the size and risk of this liability is technically difficult but important for the debate over the appropriate regulation of these institutions here we take an options pricing approach to evaluating these costs and risks under the base case assumptions the estimated value of the guarantees is 7 9 billion over 10 years with a combined 5 percent value at risk of 122 billion we evaluate the sensitivity of these estimates to various modeling assumptions and also to the regulatory regime including forbearance policies and capital requirements the analysis highlights the benefits but also the challenges of taking an options based approach to evaluating the value of federal credit guarantees

information and the operation of markets tests based on a general equilibrium model of land leasing in india abstract this paper develops an estimable general equilibrium model of land leasing to test the extent to which information is commonly held in a village and whether village markets are efficient information regarding the relative farming skill of households is found to be widespread but the assumption of perfectly efficient markets within the village is rejected these results have ramifications for the estimation of agricultural household models and for our understanding of rural institutions the model is derived from the primitives of the production technology the extent of information and the distributions of assets and several household unobservables simultaneity and selection issues are dealt with explicitly in a two stage maximum likelihood estimation procedure using panel data from india

bailouts the incentive to manage risk and financial crises a firm s termination leads to bankruptcy costs this may create an incentive for outside stakeholders or the firm s debtholders to bail out the firm as bankruptcy looms because of this implicit guarantee firm shareholders have an incentive to increase volatility in order to exploit the implicit protection however if they increase volatility too much they may induce the guarantee extending parties to walk away i derive the optimal risk management rule in such a framework and show that it allows high volatility choices while net worth is high however risk limits tighten abruptly when the firm s net worth declines below an endogenously determined threshold hence the model reproduces the qualitative features of existing risk management rules and can account for phenomena such as flight to quality

household composition labor markets and labor demand testing for separation in agricultural household models this paper tests the separation of farm labor supply and labor demand decisions using the observation that household composition is an important determinant of farm labor use with nonseparation after assessing the conditions under which the test has power against several alternatives an empirical model is developed to test the proposition that farm employment is independent of family composition the model is estimated on a data set from rural java the null hypothesis that farm labor allocation decisions are independent of household structure is not rejected the results are robust to different specifications of the labor demand function copyright 1992 by the econometric society

information learning and wage rates in low income rural areas in this essay we present evidence that employers in rural areas of developing countries have imperfect information with regard to the productivity of heterogeneous workers in addition to obtaining direct measures of the completeness of employer information we consider the implications of information asymmetries for the structure of casual labor markets we then evaluate the extent to which casual labor markets do in fact exhibit these attributes we find that 1 there is adverse selection out of the time rate labor market 2 employers discriminate statistically given two workers with different observed characteristics but the same actual productivity the worker from the group with the higher average productivity will have a higher wage 3 employers exhibit learning over time the extent of employer ignorance is negatively related to labor market exposure on the part of the workers and 4 calorie consumption affects productivity but is not rewarded in the time rate labor market in concluding we argue that an analysis of wage and employment patterns and the implications of these patterns for human capital investment in rural areas of developing countries that ignored the role of information problems could yield misleading conclusions

optimal taxation in the presence of bailouts the termination of a representative financial firm due to excessive leverage may lead to substantial bankruptcy costs a government in the tradition of ramsey 1927 may be inclined to provide transfers to the firm so as to prevent its liquidation and the associated deadweight costs it is shown that the optimal taxation policy to finance such transfers exhibits procyclicality and history dependence even in a complete market these results are in contrast with pre existing literature on optimal fiscal policy and are driven by the endogeneity of the transfer payments that are required to salvage the financial firm

shadow wages and peasant family labour supply an econometric application to the peruvian sierra a striking feature of developing economies is the large proportion of the work force that is self employed lack of widespread labor market participation in the agricultural sector can pose a major obstacle to the empirical implementation of economic models of the peasant household whether because wage data are simply not available or because the assumptions required to make use of wage data stretch the bounds of credulity this paper develops a methodology for estimating a structural labor supply model for primarily self employed peasant households which holds under a general agricultural technology and set of labor market conditions the unique feature of the approach is that the opportunity cost of time or shadow wage of household workers is explicitly estimated from an agricultural production function and is subsequently used to identify a set of structural labor supply parameters recent household survey data from rural peru is employed to estimate and perform various diagnostic tests on the model the empirical findings lend support to the hypothesis that peasant households allocate their members time as if to maximize a family utility function and moreover demonstrate the tractability of the shadow wage methodology and its usefulness in estimating more elaborate time allocation models

comparative advantage information and the allocation of workers to tasks evidence from an agricultural labour market we use data from an agricultural labour market in which workers receive both time and piece rate wages and shift frequently among employers and tasks to assess the roles of comparative advantage information problems and preferences in determining the allocation of workers the estimates which impose minimal structure not implied by economic theory are consistent with a one factor productivity model and indicate that information asymmetries are present but workers are sorted according to comparative advantage in particular the disproportionate presence of female workers in weeding activities is due not to worker or employer preferences but to comparative advantage and statistical discrimination

the value of pension benefit guaranty corporation insurance this paper considers the cost of pension benefit guaranty corporation pbgc insurance for single employer defined benefit pension plans it derives a formula for the pbgc s liability that explicitly recognizes the two necessary conditions that must arise for the pbgc to sustain a loss first the corporation sponsoring the pension iund must undergo bankruptcy and second this pension plan must be underfunded the pbgc s liability is valued as a contingent put option and expressed as infinite series of modified bessel functions the comparative statics of the model are examined and are quite consistent with economic intuition copyright 1994 by ohio state university press

renegotiation proof tenurial contracts as screening mechanisms abstract this paper is motivated by the hypothesis that the nature of the tenurial contract is sensitive to the tenant s privately known level of farming skill in particular tenants with low skill levels work for wage contracts those with high skill levels work for rent contracts and tenants whose skill levels lie in between these extremes work for share contracts we study a principal agent type model both with and without the assumption that the parties can commit not to renegotiate the terms of the initially binding accepted contract if the parties can make such a commitment then our results do support this hypothesis on the other hand if the parties cannot make such a commitment then with some positive probability tenants of all skill levels work for the same wage or share contract however with the complement positive probability the hypothesis is vindicated in the no commitment case as well