| This dissertation concerns three problems in the theory of institutional design. First, models based on the Stiglitz (1974, 1986) imperfect information paradigm imply that output sharing contracts are optimal for some risk preference and production parameters, but leave open the question of whether these are plausible values. Second, this approach also relies on arbitrarily assuming that one party acts as principal. Finally, `transaction cost' explanations based on the threat of post-contractual opportunism can be criticized on the grounds that they imply an ad-hoc (and unnecessary) departure from fully rational behavior on the part of the victim.;As both incomplete information and transaction cost theories are widely regarded as being particularly relevant to landlord-tenant relationships, the theory of tenure choice is a logical context in which to explore these three problems. The first motivates a simulation based on empirically observed levels of risk aversion among low-income farmers. The results show that the incomplete information theory predicts only small differences between the most popular contracts, contrary to the fact that 50% shares and rent predominate in practice.;The second issue is the subject of a theoretical essay (based on Eswaran and Kotwal, 1985) which shows that, if ex-ante bargaining is possible and tenants have varying levels of human capital, the landlord cannot act as principal vis-a-vis those who are high-skilled. If skills can be acquired, this implies that the institution of share tenancy will disappear over time. The analysis also illustrates that the notion of an `alternative activity' has different meanings ex-ante and ex-post .;Finally, a dynamic transaction-cost model is developed in which the tenant behaves opportunistically if he decides to terminate the relationship. By explicitly modeling a Bayesian learning process leading to this decision, opportunism is shown to result from endogenous revisions in expectations rather than from Williamsonian `guile' and assuming bounded rationality becomes unnecessary. Participation constraints are found to be non-binding when the principal seeks to induce strategies rather than actions. As a result, the tenant achieves an interest in the farm that resembles joint ownership. |
