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

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  • H. Peyton Young
  • Mary A. Burke

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.

Suggested Citation

  • H. Peyton Young & Mary A. Burke, 2001. "Competition and Custom in Economic Contracts: A Case Study of Illinois Agriculture," American Economic Review, American Economic Association, vol. 91(3), pages 559-573, June.
    • Handle: RePEc:aea:aecrev:v:91:y:2001:i:3:p:559-573
    Note: DOI: 10.1257/aer.91.3.559
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    References listed on IDEAS

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    More about this item

    JEL classification:

    • Q15 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Land Ownership and Tenure; Land Reform; Land Use; Irrigation; Agriculture and Environment
    • Z13 - Other Special Topics - - Cultural Economics - - - Economic Sociology; Economic Anthropology; Language; Social and Economic Stratification
    • J43 - Labor and Demographic Economics - - Particular Labor Markets - - - Agricultural Labor Markets
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation

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