Joseph Stiglitz: belief

Transcript context

…What was it that had puzzled you about Kenyan sharecropping back then? Back then, one of the issues that, of course, as public finance economists, we worried about was the adverse incentive effect on taxation. If a government takes 50 percent of your product, we all say, “Oh, that’s a terrible system. It discourages work.” General sense in the United States is that even the top rate shouldn’t be higher than 40 percent. I think that’s wrong, but that was certainly a sentiment, a very strong sentiment. Well, here you had sharecropping — not only in Kenya but many other countries around the world — where one-half to two-thirds of the produce was taken by the landlord. That was equivalent to a tax of 50 percent to 67 percent, and yet this was a prevalent form of tenancy, the arrangement that people had with a landlord. One had to ask, why was that? How could this seemingly inefficient system persist for thousands of years? That was what motivated one of my most influential papers. That was the idea that there was a risk-incentive tradeoff, that in the absence of perfect information and the presence of a lot of risk, farmers couldn’t bear the risk of land ownership. If they owned the land, or rented the land more accurately, they’d have to absorb all the residual, the fluctuations in the weather, and all the other fluctuations, disease, that they would confront. With sharecropping, they divided that risk, and a lot of the risk was borne by the landlord. That was a model of what came to be called the principal-agent problem, and it’s part of the incentive model that now is really fundamental. It was a first formalization of that basic incentive model that is now basic to modern economics. Is some of that that the landowner was providing fertilizer, machinery — that that’s the principal-agent problem on both sides, and you need to weigh off the marginal incentives? Or was it just monopolization of the land?…

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