Adapting Contract Theory to Fit Contract Farming

This article discusses the current state of contract theory and its usefulness for conceptualizing issues related to agricultural contracting. I will discuss the limitations of existing theory for applied work, and what methodological improvements are needed to enhance the usefulness of the theory to agricultural economists. One pervasive problem is that the canonical economic literature on contracts is rather fragmented and the various methodological strands are narrow in their focus. As such, there is a need for agricultural economists to engage in methodological research to develop applied contracting models that can capture higher order features of real world agricultural contracts while delivering generalizable comparative statics predictions. The need for such research is obvious as contracting continues to expand along the entire modern food marketing channel. In the latter part of this article, I develop a simple model to illustrate how classic methodological approaches can be combined with recent developments in contract and game theory to construct applied theory models that are useful for capturing some important features of agricultural contracts.