The (Im)possibility of Reverse Share Tenancy

Abstract

Under the assumption that the landlord is risk-neutral and the tenant is risk-averse, sharecropping is second-best in that it trades off risk sharing and incentives. Many, however, have reported instances of reverse share tenancy, or sharecropping in which the landlord is considerably poorer than the tenant. This note shows that reverse share tenancy is impossible under the canonical Stiglitzian model of sharecropping but becomes possible if and only if (i) both the landlord and the tenant can be assumed risk-averse; or (ii) there exist significant transactions costs making sharecropping more desirable than either a wage or fixed rent contract.