Sharecropping, interlinkage, and price variation

This paper proposes a theory of sharecropping and interlinkage on the basis of seasonal variation of price and imperfectly competitive nature of rural product markets. First, a benchmark model is considered to show the optimality of sharecropping in the presence of price variation. This model is extended by allowing interlinked contracts to show that there are multiple equilibria and both forms of contracts—fixed rental and sharecropping—can be sustained in equilibrium. Finally, incorporating the possibility of competition in the product market, an equilibrium refinement is proposed and it is shown that the unique equilibrium that is robust to this refinement results in a contract that involves sharecropping as well as interlinkage. This theory also sheds light on several related issues like observed uniformity of share contracts, technological stagnation and the notion of power in a rural context.