Insecure Land Rights and Share Tenancy in Madagascar

While most studies looking at the consequences of tenurial insecurity on land markets in developing countries focus on the effects of tenurial insecurity on the investment behavior of landowners, this paper studies the hitherto unexplored relationship between tenurial insecurity and contract choice in land tenancy. Based on a distinct feature of the interaction between formal law and customary rights in Madagascar, this paper augments the canonical model of share tenancy by making the strength of the landlord’s property right increasing in the amount of risk she chooses to bear within the contract. Sharecropping may thus emerge as the optimal contract even when the tenant is risk-neutral. Using data on landlords’ subjective perceptions of tenurial insecurity in a rural area of Madagascar, empirical tests strongly support the hypothesis that insecure property rights drive contract choice while offering little support in favor of the canonical hypothesis that risk sharing considerations drive contract choice.