Journal of Economic Studies

Purpose – The purpose of this paper is to gain a better understanding of the role of culture in general, and social distance in particular, in influencing the choice and efficiency of various contractual modes in developing country agriculture. It aims to focus on sharecropping, but the model of social distance can be applied to any contract, mainly those in close-knit village societies.

Design/methodology/approach – Principal components analysis (PCA) is used in the study to develop a social distance index for all sharecroppers, which is included as an independent variable in land productivity ordinary least squares (OLS) regressions.

Findings – Findings indicate social distance is a key determinant in sharecropping efficiency for marginal tenant farmers in rural Nepal. Specifically, social distance is found to be a significant factor in explaining land productivity differentials between owned land and sharecropped land.

Research limitations/implications – Future research hopes to see whether social distance is also a significant factor in the efficiency and choice of bonded labor contracts. It intends to use simple OLS regressions for sharecroppers and bonded laborers separately in which: input use and land productivity are separate dependent variables, and the various factors or proxies of social distance are independent variables to test for their particular impact; each type of contract is the dependent variable to see the extent to which social distance affects the choice of tenancy; and social distance is the dependent variable so one can see the specific impact of different proxies. Given the small sample (although representative), the strong results in this paper are limited.

Practical implications – From a policy standpoint, the results suggest that a relatively egalitarian agrarian structure, insofar as it results in lower social distances among parties to land and labor contracts, would have a positive impact on productivity. Therefore, the object of agrarian reforms should not be to alter or constrain the form of contracts (for example by banning sharecropping) but rather to improve the social relations among contracting parties.

Originality/value – This paper is original and provides value in three ways: a conceptually and theoretically innovative model that explains sharecropping efficiency independent of standard explanations of market imperfections, transaction costs, and risk; in developing a new measure of social distance that allows the data to determine the weights of the independent variables in constructing social distance; and to see the need to more importantly study the changing social relations on which contracts are based and are often only one element of.