Endogenous Matching and the Empirical Determinants of Contract Form
Empirical work on contracts typically regresses contract choice on observed principal and agent characteristics. If (i) some of these characteristics are unobserved or partially observed and (ii) there are incentives whereby particular types of agents end up contracting with particular types of principals, estimated coefficients on the observed characteristics may be misleading. We address this endogenous matching problem using a data set on agricultural contracts between landlords and tenants in early Renaissance Tuscany. Controlling for endogenous matching has an impact on parameters of interest, and tenants' risk aversion appears to have influenced contract choice.
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