4 Evidence on the Relationship between Incentives and

Theoretical models on moral hazard provide competing predictions on the incentive-risk relationship. These predictions are derived under the assumptions of homogeneous agents and exogenous risk. However, the existing empirical ev-idence does not account for risk-aversion heterogeneity and risk endogeneity. This paper uses a well-built database on tenancy contracts to address these issues. Detailed information on cropping activities is used to measure the ex-ogenous risk. Risk-aversion heterogeneity and other self-selection problems are addressed through a portfolio schedule and a subsample of farmers who simul-taneously own and sharecrop different farms. This controlled exercise finds a direct relation between incentives and exogenous risk