The Effects on Agrarian Contracts of a Governmental Intervention into Bonded Labor in the Western Terai of Nepal

Abstract

We study an effective intervention into a specific form of bonded labor. The intervention led to a shift in agrarian contracts, from bonded labor to sharecropping. By comparing the pre- and post-liberation contracts we evaluate theoretical models of agrarian contracts. We suggest three mechanisms that jointly explain why landlords offered bonded labor contracts pre-liberation. One mechanism we apply to define bonded labor in contrast to tied labor. The mechanism, where the outside option as casual labor is endogenously determined by the choice of long-term contract, implies a trade-off for the landlord between efficiency and redistribution of surplus.