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The Nature of the Farm: Contracts, Risk, and Organization in Agriculture


  • Douglas W. Allen

    () (Simon Fraser University)

  • Dean Lueck

    () (University of Arizona)


The Nature of the Farm is a theoretical and empirical study of contracts and organization in agriculture based on the transaction cost framework. Transaction costs are important in agriculture because nature (for example, seasonality, weather, pests) plays such a critical role in determining output and limiting the ability of farmers to specialize. The book develops specific models and tests the implications of those models against data sets from across North American agriculture, as well as against historical case studies such as eighteenth-century European land contracts and the late nineteenth-century Bonanza farms in the United States. The book is organized in three parts. Part I examines the classic question of what determines the optimal choice between fixed rent and cropshare arrangements, concluding that it is determined by a trade-off between incentives to overuse rented land and incentives to underreport shared output. Part II tests several predictions derived from a standard risk-sharing model of contracts and finds little evidence that risk sharing is important in contract choice. Part III extends the transaction costs analysis to broader organizational issues. It introduces seasonality and timeliness costs as forces influencing the gains from specialization and the costs of contracting, and finds that farm ownership and farm organization are routinely shaped by these forces.

Suggested Citation

  • Douglas W. Allen & Dean Lueck, 2004. "The Nature of the Farm: Contracts, Risk, and Organization in Agriculture," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262511851, September.
  • Handle: RePEc:mtp:titles:0262511851

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    Cited by:

    1. Plunkett, Bradley & Duff, Andrew & Kingwell, Ross & Feldman, David, 2016. "Australian agricultural scale and corporate agroholdings: environmental and climatic impacts," International Food and Agribusiness Management Review, International Food and Agribusiness Management Association, vol. 20(2), May.
    2. Lerman, Zvi & Sutton, William R., 2006. "Productivity And Efficiency Of Small And Large Farms In Moldova," Discussion Papers 7133, Hebrew University of Jerusalem, Department of Agricultural Economics and Management.
    3. L. Amblard & J.P. Colin, 2008. "Reverse tenancy in Romania: Actors' rationales and equity outcomes," Post-Print hal-00454533, HAL.
    4. Petrick, Martin, 2008. "Theoretical and methodological topics in the institutional economics of European agriculture. With applications to farm organisation and rural credit arrangements," Studies on the Agricultural and Food Sector in Transition Economies, Leibniz Institute of Agricultural Development in Transition Economies (IAMO), volume 45, number 92318, December.
    5. Barrett E. Kirwan & Michael J. Roberts, 2016. "Who Really Benefits from Agricultural Subsidies? Evidence from Field-level Data," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 98(4), pages 1095-1113.
    6. MacDonald, James M., 2011. "Why Are Farms Getting Larger? The Case Of The U.S," 51st Annual Conference, Halle, Germany, September 28-30, 2011 115361, German Association of Agricultural Economists (GEWISOLA).
    7. Ratinger, Tomas & Foltyn, Ivan & Jelinek, Ladislav & Kristkova, Zuzana, 2012. "Distributional effects and structural change induced by various CAP Pillar 1 proposals; the case of the Czech Republic," 126th Seminar, June 27-29, 2012, Capri, Italy 126221, European Association of Agricultural Economists.
    8. MacDonald, James M. & Perry, Janet E. & Ahearn, Mary Clare & Banker, David E. & Chambers, William & Dimitri, Carolyn & Key, Nigel D. & Nelson, Kenneth E. & Southard, Leland W., 2004. "Contracts, Markets, and Prices: Organizing the Production and Use of Agricultural Commodities," Agricultural Economic Reports 34013, United States Department of Agriculture, Economic Research Service.
    9. Baoling Zou & Biliang Luo, 2018. "Why the Uncertain Term Occurs in the Farmland Lease Market: Evidence from Rural China," Sustainability, MDPI, Open Access Journal, vol. 10(8), pages 1-15, August.
    10. Benmehaia, Mohamed Amine & Brabez, Fatima, 2016. "The Propensity To Cooperate Among Peasant Farmers In Algeria: An Analysis From Bivariate Approach," International Journal of Food and Agricultural Economics (IJFAEC), Alanya Alaaddin Keykubat University, Department of Economics and Finance, vol. 4(4), pages 1-14, October.
    11. Liang Lu & Thomas Reardon & David Zilberman, 2016. "Supply Chain Design and Adoption of Indivisible Technology," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 98(5), pages 1419-1431.
    12. Ma, X. & Zhou, Y. & Heerink, N. & Shi, X. & Liu, H., 2018. "Tenure security, social relations and contract choice: Endogenous matching in the Chinese land rental market," 2018 Conference, July 28-August 2, 2018, Vancouver, British Columbia 277478, International Association of Agricultural Economists.
    13. Rachael E. Goodhue & Dale M. Heien & Hyunok Lee & Daniel A. Sumner, 2003. "Contracts and Quality in the California Winegrape Industry," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 23(3_4), pages 267-282, December.
    14. Nicolas Quérou & Antoine Soubeyran & Raphael Soubeyran, 2015. "Moral hazard and capability," Working Papers hal-02795218, HAL.
    15. Luis H.B. Braido, 2005. "Risk and Insurance in Sharecropping," Risk and Insurance 0508002, University Library of Munich, Germany.
    16. Kirk D. Johnson & Steven G. Medema & Warren J. Samuels, 2014. "The 8th Duke of Argyll, the Economics of Land Tenancy, and Stigler’s "Coase Theorem"," HISTORY OF ECONOMIC THOUGHT AND POLICY, FrancoAngeli Editore, vol. 2014(2), pages 5-28.
    17. Seo, Sangtaek & Leatham, David J. & Mitchell, Paul D., 2003. "Risk Sharing and Incentives with Crop Insurance and External Equity Financing," 2003 Regional Committee NCT-194, October 6-7, 2003; Kansas City, Missouri 132523, Regional Research Committee NC-1014: Agricultural and Rural Finance Markets in Transition.
    18. Fragkandreas, Thanos & Larsen, Karin, 2009. "Social Capital and Economic Performance: some lessons from Farm Partnerships in Sweden," MPRA Paper 17916, University Library of Munich, Germany.
    19. Clemente Forero-Pineda & Eduardo Wills Herrera & Veneta Andonova & Luz Elena Orozco Collazos & Oscar Pardo, 2014. "Violence, Insecurity and Hybrid Organisational Forms: A Study in Conflict-Ridden Zones in Colombia," Journal of Development Studies, Taylor & Francis Journals, vol. 50(6), pages 789-802, June.
    20. Akramov, Kamiljon T. & Omuraliev, Nurbek, 2009. "Institutional change, rural services, and agricultural performance in Kyrgyzstan:," IFPRI discussion papers 904, International Food Policy Research Institute (IFPRI).
    21. Lerman, Zvi & Sedik, David J., 2009. "Sources of Agricultural Productivity Growth in Central Asia," 2009 Annual Meeting, July 26-28, 2009, Milwaukee, Wisconsin 49312, Agricultural and Applied Economics Association.
    22. Hahlbrock, Konstantin & Hockmann, Heinrich, 2011. "Does Group Affiliation Increase Productivity And Efficiency In Russia’S Agriculture? Evidence From Agroholdings In The Belgorod Oblast," 2011 International Congress, August 30-September 2, 2011, Zurich, Switzerland 114579, European Association of Agricultural Economists.
    23. Duvaleix-Treguer, Sabine & Gaigne, Carl, 2012. "Cost Economies in Hog Production: Feed prices matter," Working Papers 125261, Structure and Performance of Agriculture and Agri-products Industry (SPAA).

    More about this item


    transaction cost framework; agriculture;

    JEL classification:

    • Q1 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture


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