Violence Risk and Agrarian Contract Choice : Theory and Evidence from the Manchuria of China in the 1930s

The relationship between risk and agrarian contract choice is of great importance in contract theory. However, the literature has neglected risk related to violent crimes. This paper investigates the influence of the risk from both violence and disasters on agrarian contract choice by using data from microlevel household surveys of Manchurian villages in the 1930s. Consistent with the predictions of our novel theoretical analyses, we find robust evidence that when either type of risk increases, (i) share contracts are more likely to be chosen, and (ii) the rent ratios in both share and fixed-rent contracts decrease. Statement (i) implies a negative relationship between risk and incentives, as in the standard model, while (ii) indicates a positive relationship. This paper not only provides new evidence for the debate on the role of risk in contract choice but also presents a new microlevel mechanism through which violent crimes can affect economic performance