Abstract – The reallocation of property rights at the transition from slavery to free labor in Brazil, the US South, Jamaica, among others, were often followed by stagnation and even falls in GDP per capita. One theory for the higher productivity of slaves claims it was the coercion available to slave-owners and not to employers. A second argues that plantations were using various incentives to induce it – more food, time-off etc. Loss of scale at abolition is the implied theory. In this paper, some recent theories of the firm are used to study the incentive mechanisms when effort at multiple tasks must be supervised. A principal-agent model is used to show how wrong incentives after abolition could have induced former slaves to produce more peasant crops relative to the plantation staples which yielded more GDP. If at the transition to free workers there is no technical progress or changes in product prices, plantations may become unviable and the economy can collapse into lower-productivity family farms or worse. An exception to this argument is the “gold rush” outcome where the pulverized activity is so lucrative that growth can occur without hierarchical production structures. In the absence of such windfalls, agents may resort to less efficient, incentive-compatible mechanisms akin to sharecropping, tenancy and marginal-product wage labor which do not need the supervision which firms provide.

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Ano: 2015

Working-paper: WP088

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