Question

1. Distinguish between a tenant farmer and a sharecropper. Whose exposure to risk is greater and why?

Answer 1

In the scenario of a tenant farmer, the farmer pays a fixed amount of rent for the piece of land he/she uses and has rented from a big landowner. Here. farmer doesn't own the land but pays rent for its occupancy and usage. In case of an mishap, solely the farmer is exposed to risk and not the big landowner. Hence there is no risk sharing and has higher exposure to risk.

On the contrary, a sharecropper functions more or less in a similar way. He also doesn't own the land and gets a piece of land for usage by the big landowner but in this case, he doesn't pay in the form of rent but rather in kind. In exchange for the piece of land received from the landowner, the sharecropper exchange for a share of crop produced that must be given to the big landowner. Of course, the amount of share to be given is determined through a contract, In this case, since both parties are involved, risk is actually shared between the sharecropper and the landowner.