Question

Why does sharecropping continue to exist as opposed to laborers renting
land and paying for the rent with the proceeds of their harvest?
Sharecropping is a farming system in which owners of the land allow
others to farm it and then the harvest is split, with some portion (let's say
half) going to the laborer and some to the land owner.  Renting land (the
"English system") is an alternative in which laborers pay a fixed monetary
rent and then keep all of the proceeds of their production.  For hundreds of
years commentators have pointed out that sharecropping lowers overall
investment and effort and that renting both generates more revenue for
owners and, on average, more revenue for laborers due to the harvest
generally being much larger.  However, when prices drop significantly for
agricultural outputs, rents can exceed the total value of output under the
English system.  Given that in the English system rent returns more money
to landowners and on average generates more income for laborers
than sharecropping, why is sharecropping still so common?

Answer 1

Sharecropping is a way for very poor farmers to earn a living from land owned by someone else. The landowner provides land, housing, tools and seeds and a local merchant loans money for food and supplies. At harvest time, the sharecropper receives a share of crop which pays off the debt to merchant.

It may happen that when prices drop for agricultural outputs, rents can exceed the total value of output under the
English system. Economist Alfred Marshall has given paradox in response to share cropping that focuses on transaction cost and riskk sharing, or a risk incentive trade-off. This may answer why sharecropping is still so common. Some features are-

1. In terms of transaction costs-  Here, transaction costs mainly refer to the monitoring cost. Landlords condition contracts on the appropriate levels of inputs, however, cost of monitoring all the costs, including the labor, is expensive or inadequate. The choice of contract arrangement depends on the technical skills of the farmers and and monitoring skills of the landowner, hence, sharecropping becomes a choice when both the parties fail to do so.

2. In terms of risk- aversion- Sharecropping is an arrangement, whereby the landowner rents land to his tenant and along with this, packagescrop and price insurance. The landlord is richer and therefore can more easily bear the risk.Moreover, the landlord can use the land as collateral and can smooth the consumption process by lending and borrowing, which lowers the impact of risk. By trading off, tenant's comparative advantage (labor supervision) with landowner's comparative advantage (risk aversion), sharecropping provides a superior welfare outcome.

3. Other benefits- Landlords with better access to credit may be better placed to bridge the time gap between paying for inputs and receiving from outputs. Responsibility for input purchase is mostly divided between the farmer and the landlord. Farmer has reponsibility for inputs for which there is a resale market available and where regular monitoring is difficult.If the landlord provides inputs, this increases the incentive to farmer to devote his maximum labor to land. When the landlord and the tenant share the cost of inputs and the crop share is set equal to the cost share, sharecropping can be an efficient arrangement.