Technical efficiency, production risk, and sharecropping: the case of rice farming in Chile

Abstract

Contractual relationships regarding land tenure in agriculture are diverse. From formal systems such as landowner and fixed rent, sharecropping emerges as an alternative in which the owner of the land shares the benefits and risks of the results with tenants. Therefore, land tenure systems differ in terms of the incentives that the landowner offers to workers, which can have an impact on productivity and production risk. The purpose of this work is to analyze the effect of sharecropping on the mean and variance of technical efficiency for a sample of rice producers in the Ñuble Region, Chile. Using panel data of 109 farmers for the years 2014-2015, we estimate a stochastic frontier model that allows heteroskedasticity in both the general and inefficiency-specific error components. The results show that farmers cultivating under sharecropping show higher levels of technical efficiency while those cultivating land by the fixed rental system reveals an increase in the variance of technical efficiency compared to landowners. Explanations based on moral hazard problems and risk-sharing mechanisms are discussed.