Contractual Mix between Cash and Kind Wages of Casual Workers in an Agrarian Economy

A two-agent general-equilibrium model is developed for explaining the mix of wage payment between cash and kind among landowners and workers. Its focus is on how, in the absence of insurance instruments but in the presence of heterogeneous tastes and attitudes toward risk among agents, the payment mix between cash and kind can serve as a welfare-improving, risk-hedging device. The model is used to determine how this optimal mix of wage payment would be affected by changes in risk-aversion, consumption preferences, technology, price risk, and production risk. While the complexity and nonlinearity of the model make it impossible to obtain clear-cut analytical results, simulation results are derived and shown to be rather robust. These results are also broadly supported by the findings of a small-scale survey of agricultural wage contracts in India