Contract choice in agriculture with joint moral hazard in effort and risk

We analyze optimal contract choice in agriculture when there is joint moral hazard on the part of the farmer in the supply of effort and the riskiness of the technique of cultivation. In the presence of limited liability, hig h-powered incentive: contracts such as fixed rental contracts will induce t he farmer to adopt techniques of cultivation that are too risky from the po int of view of the landlord. On the other hand, low-powered incentive contr acts such as fixed wage contracts will induce the farmer to supply too litt le effort. We show that sharecropping contracts emerge as a natural solutio n to balance these two conflicting considerations. (C) 2000 Elsevier Scienc e B.V. All rights reserved. JEL classification: D23; D82; O12; Q15.