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Contract Duration and Investment Incentives: Evidence from Land Tenancy Agreements

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  • Oriana Bandiera

Abstract

This paper analyzes the empirical determinants of contract length, a key and yet neglected dimension of contractual structure. I estimate contract length and contract type jointly using original data on tenancy agreements signed between 1870 and 1880 in the district of Siracusa, Italy. The findings indicate that the choice of contract length is driven by the need to provide incentives for nonobservable investment, taking into account transaction costs and imperfections in the credit markets that make incentive provision costly. The results also illustrate that because both length and the compensation scheme are used to provide incentives within the same contract, joint analysis is important for a correct interpretation of the evidence. (JEL: D82, O12, Q15) (c) 2007 by the European Economic Association.

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Bibliographic Info

Article provided by MIT Press in its journal Journal of the European Economic Association.

Volume (Year): 5 (2007)
Issue (Month): 5 (09)
Pages: 953-986

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Handle: RePEc:tpr:jeurec:v:5:y:2007:i:5:p:953-986

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Cited by:
  1. Elisabetta Iossa & Patrick Rey, 2014. "Building Reputation For Contract Renewal: Implications For Performance Dynamics And Contract Duration," Journal of the European Economic Association, European Economic Association, vol. 12(3), pages 549-574, 06.
  2. Dubois, Pierre & Vukina, Tomislav, 2009. "Incentives to Invest in Short-term vs. Long-term Contracts: Evidence from a Natural Experiment," TSE Working Papers 09-136, Toulouse School of Economics (TSE), revised Dec 2009.
  3. Matthew Ellman, 2006. "The optimal length of contracts with application to outsourcing," Economics Working Papers 965, Department of Economics and Business, Universitat Pompeu Fabra.
  4. Helge Holden & Lars Holden & Steinar Holden, 2005. "Contract Adjustment under Uncertainty," CESifo Working Paper Series 1472, CESifo Group Munich.
  5. Conlin, Michael & Orsini, Joe & Tang, Meng-Chi, 2013. "The effect of an agent’s expertise on National Football League contract structure," Economics Letters, Elsevier, vol. 121(2), pages 275-281.
  6. Luis H.B. Braido, 2005. "Risk and Insurance in Sharecropping," Risk and Insurance 0508002, EconWPA.
  7. Yutaka Arimoto & Tetsuji Okazaki & Masaki Nakabayashi, 2005. "Risk, Transaction Costs, and Geographic Distribution of Share Tenancy: A Case of Pre-War Japan," CIRJE F-Series CIRJE-F-322, CIRJE, Faculty of Economics, University of Tokyo.
  8. Yutaka ARIMOTO & Tetsuji OKAZAKI & Masaki NAKABAYASHI, 2010. "Agrarian Land Tenancy In Prewar Japan: Contract Choice And Implications On Productivity," The Developing Economies, Institute of Developing Economies, vol. 48(3), pages 293-318.

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