Equilibrium and Ine¢ciency Properties of

Existing literature argues that interlinked tenancy contracts are superior to con-tracts which provide no credit to the tenant who in turn obtains it through a pro-fessional moneylender. In this paper, we show that in economies where tenants work for more than one landlord (Polyandrous tenancy), a situation very common in many rural economies, interlinked contracts may become inferior but nevertheless constitute an equilibrium. We de…ne two classes of credit contracts: i) Forced-credit contracts and ii) Optional-credit contracts. In the …rst class the landlords o¤er, in equilibrium, inter-linked contracts which entail more credit that the socially optimal level. In the second class the landlords subsidize the loans by lending to the tenant at equilibrium interest rates which fall below the market rates, resulting in an ine¢cient outcome. How-ever, under both classes of credit contracts the landlords are in a prisoners ’ dilemma situation