Question

When there is an unequal distribution of land, which type of agricultural contract will be most efficient and why: fixed wage, fixed rent, or sharecropping?

Answer 1

Fixed wage agricultural contract is when the tenant who occupies the land is paid a fixed wage which is equal to his expected return from sharecropping. The tenant is paid according to his acreage and the exposure to the risk incurred by the tenant is reduced, the landlord bears the risk, which is too much inefficiency as the landlord will have to keep a watch on the output constantly.

In Fixed rent the tenant takes the entire risk of crop failure. Thus the landlord charges a fixed rent for the land, which the tenant occupies. This leads to inefficiency when there is crop failure and the tenant has to pay the rent anyways, even if he doesn't earn anything.

Sharecropping is the sharing of the tenant's output in half with the landlord.

When there is unequal distribution of land, meaning the landlord owns more than half the land in the area, redistribution plays an important role thus in sharecropping even though in some parts it is inefficient (tenant does not have the incentive to invest if the landlord doesn't) it is much widespread and efficient than fixed wage and fixed rent as both the parties share the risk and this reduces the likelihood of the landlord taking a higher share of the profits.