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Searching For Ratchet Effects In Agricultural Contracts

  • Allen, Douglas W.
  • Lueck, Dean

In a dynamic contracting environment, increasing standards over time in light of past performance is known as the ratchet effect. Despite the recent theoretical attention given to the ratchet effect, models that include these effects have not been empirically tested against contract data. In this study, we use farm-level data on modern Great Plains agricultural cash rent and cropshare contracts to test for the presence of ratchet effects in the context of a principal-agent model with moral hazard. We find limited evidence for the ratchet effect within share contracts, and no evidence that it is important for the choice of contract between cash rent and cropshare.

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File URL: http://purl.umn.edu/30796
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Article provided by Western Agricultural Economics Association in its journal Journal of Agricultural and Resource Economics.

Volume (Year): 24 (1999)
Issue (Month): 02 (December)
Pages:

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Handle: RePEc:ags:jlaare:30796
Contact details of provider: Web page: http://waeaonline.org/

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  1. Meyer, Margaret A & Vickers, John, 1995. "Performance Comparisons and Dynamic Incentives," CEPR Discussion Papers 1107, C.E.P.R. Discussion Papers.
  2. Jean-Jacques Laffont & Jean Tirole, 1993. "A Theory of Incentives in Procurement and Regulation," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262121743, June.
  3. Kanemoto, Yoshitsugu & MacLeod, W Bentley, 1992. "The Ratchet Effect and the Market for Secondhand Workers," Journal of Labor Economics, University of Chicago Press, vol. 10(1), pages 85-98, January.
  4. Olsen, Trond E & Torsvik, Gaute, 1993. "The Ratchet Effect in Common Agency: Implications for Regulation and Privatization," Journal of Law, Economics and Organization, Oxford University Press, vol. 9(1), pages 136-58, April.
  5. Joskow, Paul L, 1987. "Contract Duration and Relationship-Specific Investments: Empirical Evidence from Coal Markets," American Economic Review, American Economic Association, vol. 77(1), pages 168-85, March.
  6. Freixas, Xavier & Guesnerie, Roger & Tirole, Jean, 1985. "Planning under Incomplete Information and the Ratchet Effect," Review of Economic Studies, Wiley Blackwell, vol. 52(2), pages 173-91, April.
  7. 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.
  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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