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The Role of Risk and Transaction Costs in Contract Design: Evidence from Farmland Lease Contracts in U.S. Agriculture

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  • Keita Fukunaga
  • Wallace E. Huffman
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    Abstract

    The objective of this article is to provide new empirical evidence on landlord-tenant choices of share versus cash-rent contracts in U.S. agriculture. The focus is on the contribution of explanatory variables that represent transaction costs, risk-sharing incentives, or both. An empirical model of contract choice is tested against the 1999 Agricultural Economics and Land Ownership Survey (AELOS) and finds mixed evidence for low transaction cost and risk-sharing-incentive motives for landlord-tenant choices of a share versus cash-rent contract. However, the behavior of landlords and tenants is consistent with them being risk averse. Although it is standard to control for the riskiness of the principal's task that is contracted, we find that other attributes of the landlord are an important part of a relatively complex story for U.S. land tenancy contacting. The latter results have generally been ignored in other published landlord-tenant contracting studies. Copyright 2009, Oxford University Press.

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    File URL: http://hdl.handle.net/10.1111/j.1467-8276.2008.01164.x
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    Bibliographic Info

    Article provided by Agricultural and Applied Economics Association in its journal American Journal of Agricultural Economics.

    Volume (Year): 91 (2009)
    Issue (Month): 1 ()
    Pages: 237-249

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    Handle: RePEc:oup:ajagec:v:91:y:2009:i:1:p:237-249

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    Cited by:
    1. Paulson, Nicholas D. & Katchova, Ani & Lence, Sergio H., 2010. "An Empirical Analysis of the Determinants of Marketing Contract Structures for Corn and Soybeans," Staff General Research Papers 31525, Iowa State University, Department of Economics.
    2. Liu, Elaine M. & Huang, JiKun, 2013. "Risk preferences and pesticide use by cotton farmers in China," Journal of Development Economics, Elsevier, vol. 103(C), pages 202-215.
    3. Baylis, Katherine R. & Chhatre, Ashwini & Prasanna, Satya & Songsermsawas, Tisom, 2012. "Friends or Traders? Do social networks affect the use of market mechanisms by farmers in India," 2012 Annual Meeting, August 12-14, 2012, Seattle, Washington 124889, Agricultural and Applied Economics Association.
    4. Hotopp, Henning & Mußhoff, Oliver, 2012. "Can rent adjustment clauses reduce the income risk of farms?," International Journal of Agricultural Management, Institute of Agricultural Management;International Farm Management Association, vol. 1(4), July.
    5. Bellemare, Marc F., 2010. "Insecure Land Rights and Share Tenancy in Madagascar," MPRA Paper 23640, University Library of Munich, Germany.
    6. Qiu, Feng & Goodwin, Barry K. & Gervais, Jean-Philippe, 2010. "An Empirical Investigation of the Linkages between Government Payments and Farmland Leasing Arrangements," 2009 Annual Meeting, July 26-28, 2009, Milwaukee, Wisconsin 49242, Agricultural and Applied Economics Association.

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