نقش ریسک اشتراک گذاری و هزینه های معاملات در انتخاب قرارداد: نظریه و شواهد از قراردادهای آب های زیرزمینی

Empirical modeling of contract choice has been problematic because routine large-scale surveys do not contain sufficient information on matched partners and on contractual terms. This paper is based on a primary level survey of groundwater contracts in India. We discuss several different measures for riskiness and transaction costs and use them to test for alternative theories of contract choice. Although the risk sharing explanation has been most popular in the theoretical literature, it is not found to be significant. The data are more consistent with a double-sided incentive model, where the need for giving proper incentives to the buyer and the seller determines contract choice.

With the spread of contracting all over the world, there has been a growing interest in examining the determinants of contract choice. Theoretical research on the subject has analyzed the role of a wide array of factors, such as risk sharing, moral hazard, capital constraints and transaction costs on contract choice (Cheung, 1969, Stiglitz, 1974, Grossman and Hart, 1983, Eswaran and Kotwal, 1985, Laffontaine, 1992 and Laffont and Matoussi, 1995). However, it is important to recognize that most of the results derived from these models hold only under very specific assumptions regarding the functional forms and the strategy space of the agent (Holmstrom and Milgrom, 1987). Thus, it is widely recognized that careful empirical work is critical in our understanding about the accuracy and generality of the theoretical results.

In this paper, we have analyzed the structure of groundwater contracts and tested for alternative theories on the rationale for contract choice. Both fixed payment and cropsharing contracts were found to coexist in the sample villages. To explain this coexistence of contract types, the insurance-incentive tradeoff model that emphasizes the tradeoffs between risk sharing and incentive provision to the cultivator was compared with the double-sided incentive model that emphasizes the role of transaction costs in contract choice and the associated incentive problem on both sides. The challenge in testing for these theories stems from the difficulty in finding appropriate empirical measures for theoretical constructs, such as riskiness of different crops, risk preferences and the moral hazard problem. The commonly used procedure of using suitable proxies for partially observed or unobserved explanatory variables may result in biased estimates due to endogenous matching. In our study, we discussed several alternative solutions to ameliorate these problems. A couple of different measures of riskiness of crops and the incentive problems were discussed and estimated using panel data from ICRISAT's VLS studies. To control for the omitted variable bias we made use of the pseudo panel nature of our data set and estimated different fixed effect models. Neither the riskiness of crops nor the risk-bearing abilities of the two parties was found to be significant in explaining the probability of share contracts. Interestingly, the irrigation elasticity of the crop (which we use a measure of the seller's incentive problem) was found to be highly significant, and this result was found to be quite robust across the different specifications we tried, including the pooled sample and different fixed effect models. On the other hand, the labor elasticity of the crop was found to be significant in only some of the specifications. To the extent that these labor and irrigation elasticities adequately capture the actual incentive problem faced by buyer and seller, respectively, these results provide some support to a model based on a double-sided incentive problem where the need for giving proper incentives to both the buyer and the seller determines contract choice.