Share Contract Revisited: A New Transaction Cost Approach

Abstract

The purpose of this paper is to explore how sharecropping contracts are chosen over fixed-rent contracts. There are two concerning issues. First, theoretical explanation has been criticized for not providing a satisfactory answer to the question as to why share contracts are chosen. Second, among the existing empirical studies, there are great controversies about the impact of variance of output. Inspired by the latest insights from (Cheung, S. N. S. 2014. Economic Explanation. Hong Kong: Arcadia Press.), this paper not only provides an explanation for the choice of share contract that is suitable for empirical testing, but also solves the puzzle over variance of output. Show more