Three Essays on Groundwater and Tenancy Contracts in Rural Economies

The dissertation in hand deals with the phenomenon of informal markets for water and land in the agricultural sector of developing countries with a special emphasis on India.In the first part, I present data from a field study on informal groundwater markets conducted by myself in Tamil Nadu, India during January and February 2001. The aim of this chapter is to give an exact description of the process of contracting and of the details of the groundwater contracts in order to make some empirical evidence based predictions on the determinants of the choice between the two observed contract types: A fixed payment per unit of groundwater or a share of the water buyer's crop output in return for groundwater deliveries during a a priori undetermined period in the production season.In the second chapter, I set up a theoretical model – based on the empirical evidence from chapter one – in order to analyse which factors determine the choice between the different contract forms. Under the crucial assumptions that each party has only one potential partner to contract with, that the amount of groundwater delivered by the seller is observable but not enforceable, and that both contract parties are risk averse, I show that, dependent on the shape of the utility function, the choice of the contract form depends on such factors as the degrees of risk aversion of the contracting parties and the distribution function of the amount of rainfall.The third chapter deals with the influence of the form of tenancy contracts on the efficiency of the tenant's input decision. Using data from fourteen villages in Andhra Pradesh, India, an econometric analysis shows that the choice of a sharecropping contract leads to lower input intensities on a tenant's sharecropped plots than on his owned plots. This result remains valid if one controls for factors such as different irrigation status and different crop choice, and even if one takes into account the possible endogeneity of the crop choice.