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Contract Duration and the Division of Labor in Agricultural Land Leases

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Author Info
Jonathan Yoder
Ishrat Hossain
Francis Eppin
Damona Doye () (School of Economic Sciences, Washington State University)

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Abstract

Short-term contracts provide weak incentives for durable input investment if post-contract asset transfer is difficult. Our model shows that when both agents provide inputs, optimal contract length balances weak incentives of one agent against the other. This perspective broadens the existing contract duration literature, which emphasizes the tradeoff between risk sharing and contract costs. We develop hypotheses and test them based on private grazing contracts from the Southern Great Plains. We find broad support for the implications of our model. For example, landowners provide durable land-specific inputs more often under annual versus multiyear contracts.

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File URL: http://129.3.20.41/eps/othr/papers/0506/0506011.pdf
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File Function: First version, 2005
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Publisher Info
Paper provided by School of Economic Sciences, Washington State University in its series Working Papers with number 2005-6.

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Length: 39 pages
Date of creation: May 2005
Date of revision:
Handle: RePEc:wsu:wpaper:yoder-3

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Related research
Keywords: land lease contracts; moral hazard; contract duration; division of labor.;

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Find related papers by JEL classification:
J43 - Labor and Demographic Economics - - Particular Labor Markets - - - Agricultural Labor Markets
L23 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Organization of Production
Q15 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Land Ownership and Tenure; Land Reform; Land Use; Irrigation

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    Other versions:
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    Other versions:
  7. Williamson, Oliver E, 1983. "Credible Commitments: Using Hostages to Support Exchange," American Economic Review, American Economic Association, vol. 73(4), pages 519-40, September. [Downloadable!] (restricted)
  8. Shelanski, Howard A & Klein, Peter G, 1995. "Empirical Research in Transaction Cost Economics: A Review and Assessment," Journal of Law, Economics and Organization, Oxford University Press, vol. 11(2), pages 335-61, October.
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  13. Gray, Jo Anna, 1978. "On Indexation and Contract Length," Journal of Political Economy, University of Chicago Press, vol. 86(1), pages 1-18, February. [Downloadable!] (restricted)
  14. Danziger, Leif, 1988. "Real Shocks, Efficient Risk Sharing, and the Duration of Labor Contracts," The Quarterly Journal of Economics, MIT Press, vol. 103(2), pages 435-40, May. [Downloadable!] (restricted)
  15. Allen, Douglas W & Lueck, Dean, 1992. "The "Back Forty" on a Handshake: Specific Assets, Reputation, and the Structure of Farmland Contracts," Journal of Law, Economics and Organization, Oxford University Press, vol. 8(2), pages 366-76, April.
  16. Keith J. Crocker & Scott E. Masten, 1988. "Mitigating Contractual Hazards: Unilateral Options and Contract Length," RAND Journal of Economics, The RAND Corporation, vol. 19(3), pages 327-343, Autumn. [Downloadable!] (restricted)
  17. Bengt Holmstrom, 1979. "Moral Hazard and Observability," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 74-91, Spring. [Downloadable!] (restricted)
  18. Wallace, Frederick H. & Blanco, Herminio, 1991. "The effects of real and nominal shocks on union-firm contract duration," Journal of Monetary Economics, Elsevier, vol. 27(3), pages 361-380, June. [Downloadable!] (restricted)
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