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Entrepreneurial Abilities And Land Contracts

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Entrepreneurial abilities and land contracts in Ghana Shoan Jain This paper seeks to provide empirical evidence for how people self-select them- selves into sharecropping and rent contracts depending on their entrepreneurial skills using survey data from Ghana. The “agricultural ladder hypothesis” suggests that people with more entrepreneurial abilities, choose contract types which allow them to earn larger returns to that ability. Introduction There are two major theories that attempt to explain the coexistence of wage, rent and share- cropping agreements. Stiglitz (1974) [1] contends that sharecropping is a compromise between risk sharing and work incentives. According to this argument, more risky crops would tend to be sharecropped in a world with incomplete insurance market. Cheung (1969) [2] found evi- dence in Taiwan, where the more risky crop (wheat) was sharecropped whereas rice, which was less risky was farmed using rent contracts. However, Rao (1971)[3] found contrary evidence in farm-lease arrangement patterns in In- dia. He found that while low-risk rice crop was sharecropped, high-risk tobacco crop was farmed mostly on rent agreements. Rao notes that the theory of choice of contracts which relies on risk-dispersion, “omits any consideration of the scope for decision-making in the face of uncertainty and the nature of the production function”. Knight [4] describes how uncertainty rises in a production process and leads to subsequent 1 specialization of function

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