Unfair Incentives: A Behavioral Note on Sharecropping

We conducted a field experiment with real-life tenants in Ethiopia to test the incentive effects of fixed-wage, sharecropping, fixed-rent, and ownership contracts. The experimental task resembles a common process in agricultural production. The sharecropping contract is essentially a piece-rate scheme framed as a profit sharing agreement. The sharecropping output was about 11 percent smaller than the fixed-rent output. Surprisingly, it is statistically indistinguishable from the fixed-wage output, despite substantial piece rates. This effect is driven by real-life sharecroppers. Their sharecropping output was significantly smaller than that of non-sharecroppers, and in one region, it was even 10 percent lower than sharecroppers fixed-wage output. Based on qualitative interviews and historical accounts, we argue that our subjects dislike sharecropping contracts because of the unfair profit sharing and the controversial allocation of the land. The contractual performance may therefore depend on the perceived fairness of the incentive scheme.