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Implications of Agency Theory for Optimal Land Tenure Contracts

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  • Huffman, Wallace E.
  • Just, Richard E.

Abstract

For more than 2 centuries, economists have been interested in agricultural contracts, especially landowner-tenant contracts. The early work by Marshall (1890) argued that share tenancy was inefficient relative to owner cultivation and should not be expected to persist when other arrangements are available. Later D. Gale Johnson (1950) and Cheung (1969) argued that, if landowners can costlessly monitor and enforce tenants’ effort, then share tenancy can compete effectively with owner cultivation or cash rental. Subsequently, Stiglitz (1974) and Newberry and Stiglitz (1979) introduced principal-agent models in the more realistic case where monitoring is costly to study optimal landowner-tenant risk sharing given the need to study adequate tenant incentives. More recently, Prendergast (2002) suggested that the negative trade-off between effort incentives and risk is tenuous or wrong in principal-agent contracting, including share tenancy in agriculture. Allen and Lueck (2002) have also argued against risk sharing as a motive for share tenancy in developed countries because of the presence of well-developed instruments for risk sharing that are available regardless of tenancy arrangements. Based on transactions costs, they predict that cash rental is more likely than share rental when farmland value is low.

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  • Huffman, Wallace E. & Just, Richard E., 2004. "Implications of Agency Theory for Optimal Land Tenure Contracts," ISU General Staff Papers 200404010800001365, Iowa State University, Department of Economics.
    • Handle: RePEc:isu:genstf:200404010800001365
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    1. Zhang, Hongliang & Mu, Jianhong E. & McCarl, Bruce A., 2018. "Adaptation to climate change via adjustment in land leasing: Evidence from dryland wheat farms in the U.S. Pacific Northwest," Land Use Policy, Elsevier, vol. 79(C), pages 424-432.
    2. Yutaka ARIMOTO & Tetsuji OKAZAKI & Masaki NAKABAYASHI, 2010. "Agrarian Land Tenancy In Prewar Japan: Contract Choice And Implications On Productivity," The Developing Economies, Institute of Developing Economies, vol. 48(3), pages 293-318, September.
    3. Nakajima, Shinsaku, 2010. "Tenancy Contract Choice and Land Improvement Investment for Upland Farming," Japanese Journal of Agricultural Economics (formerly Japanese Journal of Rural Economics), Agricultural Economics Society of Japan (AESJ), vol. 12, pages 1-19.
    4. Johanna CHOUMERT & Pascale PHELINAS, 2015. "Farmland Rental Values in GM Soybean Areas of Argentina: Do Contractual Arrangements Matter?," Working Papers 201532, CERDI.
    5. Leonardo A. Lanzona Jr., 2019. "Agrarian Reform and Democracy: Lessons from the Philippine Experience," Millennial Asia, , vol. 10(3), pages 272-298, December.
    6. Qiu, Feng & Goodwin, Barry K. & Gervais, Jean-Philippe, 2011. "An Empirical Investigation of the Linkages between Government Payments and Farmland Leasing Arrangements," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 36(3), pages 1-16.
    7. Gwendoline Promsopha, 2016. "Temporary transfers of land and risk-coping mechanisms in Thailand," Working Papers hal-01409110, HAL.
    8. 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.
    9. Jun Yeong Lee & Grant Durbahn & Peter F. Orazem & Wendong Zhang, 2023. "The roles of risk preferences, selection, and uncertain returns on land contracts," Agricultural Economics, International Association of Agricultural Economists, vol. 54(2), pages 220-233, March.
    10. Isaac Maina Kariuki & Jens‐Peter Loy, 2016. "Contractual Farming Arrangements, Quality Control, Incentives, and Distribution Failure in Kenya's Smallholder Horticulture: A Multivariate Probit Analysis," Agribusiness, John Wiley & Sons, Ltd., vol. 32(4), pages 547-562, November.
    11. Douglas W. Allen & Allison Borchers, 2016. "Conservation Practices and the Growth of US Cash Rent Leases," Journal of Agricultural Economics, Wiley Blackwell, vol. 67(2), pages 491-509, June.
    12. Gwendoline Promsopha, 2018. "Risk†Coping, Land Tenure And Land Markets: An Overview Of The Literature," Journal of Economic Surveys, Wiley Blackwell, vol. 32(1), pages 176-193, February.

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