Vanags, A H., A Marshallian model of share tenancy, Department of Economics, University of Wollongong, Working Paper 90-11, 1990, 19.
Despite persistent empirical support for the Marshallian model of share tenancy it remains out of favour at the theoretical level. There appear to be two reasons for this: Firstly, earlier attempts at theorizing an endogenous share rent under Marshallian assumptions implied that either the marginal product of land would have to be zero everywhere or that a competitive share rent equilibrium would fail to exist. The second objection to the Marshallian approach has been its failure to explain why inefficient Marshallian type contracts should survive under competitive conditions. ,p>The aim of this paper is to develop a simple Marshallian model in which the share rent is endogenous and which is free from these objections. It is argued that an explanation for the persistence of ‘inefficient’ sharecropping may be that it allows landlords to appropriate a portion of tenant surpluses even though landlords have no individual market power. Moreover, it is shown that (for a suitable set of parameters) the inefficient share rent equilibrium would survive competition from ‘efficient’ contracts.