Abstract: Commences with some comments on the evolution of property rights in land and on reasons for rural land markets being relatively ‘thin’; the rest of the chapter then analyzes the more active land-lease market. First, a principal-agent model of tenancy under uncertainty and private information is presented. It is shown how sharecropping may be used to deal with the trade-off between risk-sharing and incentive that arises in the presence of moral hazard. An extension of the model that allows the tenant to decide on a non-labour input as well throws light on the ‘equal share’ rule in input costs. In the last section, a principal-agent model with a limited liability constraint is used to study the inefficiency associated with tenancy when credit markets are imperfect and also to point to the possibility of a ‘tenancy ladder’ emerging for tenants with differing wealth constraints.

Keywords: credit markets, equal share rule, limited liability, moral hazard, principal-agent, private information, rural land markets, sharecropping, tenancy, uncertainty,