{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

File2-page109 - p on output and the tenant’s payoff –...

Info iconThis preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
Asset Redistribution agricultural wages Now consider agricultural contracting problem of landlord and tenant – output depends on effort, R ( e ) , tenants have to be monitored to put in ef- fort on the land thus contract speciFes effort level e – tenant caught shirk- ing with probability p – payment schedule needed to induce effort level e at wage ϖ can be written as: w ( e , ) = v 1 p v ( 0 , )+ e p P the contract must now specify a payment/effort pair consistent with this schedule. The optimal effort that the landlord choose to induce is given by e ( p ) = argmax e = { R ( e ) w ( e , ) } it is easy to verify that e ( p ) is increasing. The tenant’s equilibrium payoff is V ( p ) = v ( 0 , ) + e ( p )( 1 p ) p , which is larger than the payoff from being a landless laborer. It is straightforward to calculate the impact of changes in
Background image of page 1
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: p on output and the tenant’s payoff – an increase in p will increase net-output since e ( p ) is increasing. The effect on the tenant’s payoff is given by: V ′ ( p ) = e ′ ( p ) 1 − p p − e ( p ) p 1 p 2 P the Frst term is positive – an increase in the eviction probability elicits higher effort and hence raises the tenant’s rent. The second effect works in the opposite direction – increasing p will decrease rent accruing to tenant at a given level of effort – hence expect overall payoff to be increasing in p Development Economics, LSE Summer School 2007 106...
View Full Document

{[ snackBarMessage ]}

Ask a homework question - tutors are online