investment on owned versus leased land. If landlords cannot credibly commit to long-term contracts, then certain types of land speci fi c investment will be underprovided by tenants, whereas investment in owned land is obviously immune to holdup.

This is not the fi rst paper to compare farming practices on tenanted and owned land, but it is the fi rst paper of its type to study investment behavior. Seminal work by Bell (1977), followed by Shaban (1987), is concerned with static efficiency; i.e., with moral hazard in current production effort that can arise in share-tenancy. Our approach, by contrast, is to examine the use of an input, farmyard manure, that enhances productivity over more than one agricultural season. While manuring improves soil quality over an extended period, it is an extremely labor intensive activity, one that, in rural Pakistan, is virtually never entrusted to a hired worker. Thus, manuring is for all practical purposes a non-contractible investment. Whether manure will be under-applied on tenanted land relative to owned land depends on the extent to which landlords can commit to rewarding the tenant for his investment. In a world of no commitment, tenants will apply manure only to the point were the marginal return in the current period (i.e., the period of the contract) equals the shadow price, and this dynamic inefficiency will be common to both share tenants and fi xed rent tenants, even though the latter are full residual claimants.

Security of tenure does not appear to be entirely lacking in rural Pakistan. Despite the absence of enforceable long-term contracts, annual tenancy contracts are typically renewed. Consequently, tenants often stay with the same landlord for a number of years, although the duration of tenancy is highly variable. Our evidence will show that a large part of this tenure heterogeneity is generated by differences across landlords in retention policies. This fact allows us to ask whether differences in the degree of commitment lead to differences in investment across tenants. If all tenants are equally insecure, then the duration of tenancy would indicate nothing about a tenant’s incentive to invest. The alternative hypothesis, against which we would like to test this null, is that the duration of a tenancy is a signal of the degree of commitment in a relationship, albeit an imperfect one. Longer durations should therefore be associated with greater investment.<sup>3</sup> Our main econometric challenge lies in dealing with the endogeneity of tenurial arrangements. Past work has stressed the importance of controlling for unobserved characteristics of the tenant so as to avoid the problem of self-selection into different contract types. Thus,

> 3 Laffont and Mattousi (1995) fi nd that longer duration share contracts are associated with higher farm output in Tunisia. However, because they do not examine investment directly, nor (crucially) allow contract duration to affect output of fi xed renters, one cannot use their results to distinguish the holdup problem from moral hazard in effort. Their empirical approach also makes more restrictive assumptions than ours in dealing with the endogeneity issues.

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