Wealth Constraints, Sharecropping Contracts and Transition to a Modern Sector

In a traditional agrarian sector tenancy contracts aloe farmworkers to produce and accumulate wealth. This is important in a dual economy characterized in its modern sector by a n high degree of credit imperfections. The wealth constrained workers can accumulate wealth by working as sharecroppers so that the next generation is able to invest in the modern, more efficient sector. W show that production in the traditional sector influenced the modern sector and vice versa,. Therefore the impact of north agrarian reforms and monetary wealth redistributions have to b evaluated regarding both the sectors and considering the possibility of intersectorial migration. We will see that for land poor economies agrarian reforms have an impact on the aggregate production while for land rich economies this can be totally ineffective. Furthermore there are equilibria where monetary wealth redistributions are preferred to the agrarian reforms.