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Competition and Custom in Economic Contracts: A Case Study of Illinois Agriculture

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Author Info
H. Peyton Young
Mary A. Burke

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Abstract

Survey data suggest that cropsharing contracts exhibit a much higher degree of uniformity than is warranted by economic fundamentals. We propose a dynamic model of contract choice to explain this phenomenon. Landowners and tenants recontract periodically, taking into account expected returns as well as conformity with local practice. The resulting stochastic dynamical system is studied using techniques from statistical mechanics. The most likely states consist of patches where contractual terms are nearly uniform, separated by boundaries where the terms shift abruptly. These and other predictions of the model are borne out by survey data on agricultural contracts in Illinois.

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Publisher Info
Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 91 (2001)
Issue (Month): 3 (June)
Pages: 559-573
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Handle: RePEc:aea:aecrev:v:91:y:2001:i:3:p:559-573

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Roth, Alvin E. & Vesna Prasnikar & Masahiro Okuno-Fujiwara & Shmuel Zamir, 1991. "Bargaining and Market Behavior in Jerusalem, Ljubljana, Pittsburgh, and Tokyo: An Experimental Study," American Economic Review, American Economic Association, vol. 81(5), pages 1068-95, December. [Downloadable!] (restricted)
  2. Douglas W. Allen & Dean Lueck, 1993. "Transaction Costs and the Design of Cropshare Contracts," RAND Journal of Economics, The RAND Corporation, vol. 24(1), pages 78-100, Spring. [Downloadable!] (restricted)
  3. Braverman, Avishay & Stiglitz, Joseph E, 1982. "Sharecropping and the Interlinking of Agrarian Markets," American Economic Review, American Economic Association, vol. 72(4), pages 695-715, September. [Downloadable!] (restricted)
  4. Lawrence Blume, 1993. "The Statistical Mechanics of Best-Response Strategy Revision," Game Theory and Information 9307001, EconWPA, revised 26 Jan 1994. [Downloadable!]
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  5. repec:att:wimass:199521 is not listed on IDEAS
  6. Guth, Werner & Schmittberger, Rolf & Schwarze, Bernd, 1982. "An experimental analysis of ultimatum bargaining," Journal of Economic Behavior & Organization, Elsevier, vol. 3(4), pages 367-388, December. [Downloadable!] (restricted)
  7. Kandori, Michihiro & Mailath, George J & Rob, Rafael, 1993. "Learning, Mutation, and Long Run Equilibria in Games," Econometrica, Econometric Society, vol. 61(1), pages 29-56, January. [Downloadable!] (restricted)
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  8. Peter Murrell, 1983. "The Economics of Sharing: A Transactions Costs Analysis of Contractual Choice in Farming," Bell Journal of Economics, The RAND Corporation, vol. 14(1), pages 283-293, Spring. [Downloadable!] (restricted)
  9. McKelvey Richard D. & Palfrey Thomas R., 1995. "Quantal Response Equilibria for Normal Form Games," Games and Economic Behavior, Elsevier, vol. 10(1), pages 6-38, July. [Downloadable!] (restricted)
  10. William A. Brock & Steven N. Durlauf, 1995. "Discrete Choice with Social Interactions I: Theory," Working Papers 95-10-084, Santa Fe Institute.
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  11. D. Gale Johnson, 1950. "Resource Allocation under Share Contracts," Journal of Political Economy, University of Chicago Press, vol. 58, pages 111. [Downloadable!] (restricted)
  12. Bell, Clive & Zusman, Pinhas, 1976. "A Bargaining Theoretic Approach to Cropsharing Contracts," American Economic Review, American Economic Association, vol. 66(4), pages 578-88, September. [Downloadable!] (restricted)
  13. Young, H Peyton, 1993. "The Evolution of Conventions," Econometrica, Econometric Society, vol. 61(1), pages 57-84, January. [Downloadable!] (restricted)
  14. Akerlof, George A, 1980. "A Theory of Social Custom, of Which Unemployment May be One Consequence," The Quarterly Journal of Economics, MIT Press, vol. 94(4), pages 749-75, June. [Downloadable!] (restricted)
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  15. Binmore, Ken, et al, 1993. "Focal Points and Bargaining," International Journal of Game Theory, Springer, vol. 22(4), pages 381-409.
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Shotter, A. & Sopher, B., 2001. "Advice and Behavior in Intergenerational Ultimatum Games: An Experimental Approach," Working Papers 01-04, C.V. Starr Center for Applied Economics, New York University. [Downloadable!]
    Other versions:
  2. Michihiro Kandori & Roberto Serrano & Oscar Volij, 2005. "Decentralized Trade, Random Utility And The Evolution Of Social Welfare," Economics Working Papers we056433, Universidad Carlos III, Departamento de Economía. [Downloadable!]
    Other versions:
  3. James Vercammen, 2002. "Cooperative Investment and the Value of Contracting with Transaction Costs," Journal of Agricultural & Food Industrial Organization, Berkeley Electronic Press, vol. 1(1), pages 1000-1000. [Downloadable!] (restricted)
  4. Mary Burke & Gary Fournier, 2005. "The Emergence of Local Norms in Networks," Computing in Economics and Finance 2005 299, Society for Computational Economics. [Downloadable!]
  5. Antonio Cabrales & Gary Charness & Marie-Claire Villeval, 2006. "Competition, Hidden Information, and Efficiency: an Experiment," Working Papers 0605, Groupe d'Analyse et de Théorie Economique (GATE), Centre national de la recherche scientifique (CNRS), Université Lyon 2, Ecole Normale Supérieure. [Downloadable!]
    Other versions:
  6. Chiappori, Pierre Andre & Salanie, Bernard, 2002. "Testing Contract Theory: A Survey of Some Recent Work," CESifo Working Paper Series CESifo Working Paper No. , CESifo GmbH. [Downloadable!]
  7. Robert Dur & Amihai Glazer, 2004. "Optimal Incentive Contracts When Workers Envy Their Boss," Tinbergen Institute Discussion Papers 04-046/1, Tinbergen Institute, revised 13 Jun 2006. [Downloadable!]
  8. repec:att:wimass:1920512 is not listed on IDEAS
  9. Robert A. J. Dur & Amihai Glazer, 2004. "Optimal Incentive Contracts For a Worker Who Envies His Boss," CESifo Working Paper Series CESifo Working Paper No. , CESifo GmbH. [Downloadable!]
  10. Sanjeev Goyal, 2003. "Learning in Networks: a survey," Economics Discussion Papers 563, University of Essex, Department of Economics. [Downloadable!]
  11. H. Peyton Young, 2007. "Social Norms," Economics Series Working Papers 307, University of Oxford, Department of Economics. [Downloadable!]
  12. Gérard Weisbuch & Guillaume Deffuant & Frederic Amblard & Jean Pierre Nadal, 2001. "Interacting Agents and Continuous Opinions Dynamics," Working Papers 01-11-072, Santa Fe Institute.
  13. repec:att:wimass:192032 is not listed on IDEAS
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