TOURNAMENTS AND SHARECROPPING

This paper explores the incentive effects of a renewal clause in a lea se. The basis of selection is rank-order performance. Our findings, in the context of a principal-agent model, are as follows. In order to e xtract greater effort From tenants (i.e. agents), the landlord (the pr incipal) must commit to a reward scheme which provides a part of the s econd-period income to the winner on the basis of past performance. Th is payment provides insurance and creates incentives for all agents to work harder in the current period. It also makes the contract efficie nt ex post and renegotiation-proof.