Tournaments and Sharecropping.

This paper explores the incentive effects of a renewal clause in a lease. The basis of selection is rank-order performance. The authors' findings, in the context of a principal-agent model, are as follows. In order to extract greater effort from tenants (i.e., agents), the landlord (the principal) must commit to a reward scheme that provides a part of the second-period income to the winner on the basis of past performance. This payment provides insurance and creates incentives for agents to work harder in the current period. It also makes the contract efficient ex post and renegotiation-proof. Copyright 1996 by The London School of Economics and Political Science.