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A Game Theoretical Model of Land Contract Choice

Author

Listed:
  • Américo Mendes

    (Portuguese Catholic University Porto - Faculty of Economics & Management)

Abstract

In most of the land tenancy literature the type of contract is exogenous. Also even though these contracts vary a lot among farms, between regions and over time, the theoretical literature has not always acknowledged this idiosyncrasy. Building on the strategic bargaining theory initiated by Rubinstein, this model not only makes the type of contract endogenous, but also provides the surplus sharing rules and the conditions giving rise to each type of contract, showing how the type and terms of the contract are tailored to fit the characteristics of the parties and their economic environment. Pairwise bargaining is embedded into a market context by putting “competitive pressure” on the players through the opportunity they have to break up bargaining and look for alternative partners. Because of this threat of opting out, the outcome of the bargaining process depends not only on the characteristics of the players, but also on events outside their match and the information they have about them. The model departs from price-taking assumptions. Type and terms of the contract result from negotiation and are shaped by the “relative bargaining powers” of the players whose relevant components are identified in a precise way in the model.

Suggested Citation

  • Américo Mendes, 2005. "A Game Theoretical Model of Land Contract Choice," Game Theory and Information 0503001, University Library of Munich, Germany.
  • Handle: RePEc:wpa:wuwpga:0503001
    Note: Type of Document - pdf; pages: 11
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    References listed on IDEAS

    as
    1. Rubinstein, Ariel, 1982. "Perfect Equilibrium in a Bargaining Model," Econometrica, Econometric Society, vol. 50(1), pages 97-109, January.
    2. Van Damme, Eric & Selten, Reinhard & Winter, Eyal, 1990. "Alternating bid bargaining with a smallest money unit," Games and Economic Behavior, Elsevier, vol. 2(2), pages 188-201, June.
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    4. Martin J. Osborne & Ariel Rubinstein, 2005. "Bargaining and Markets," Levine's Bibliography 666156000000000515, UCLA Department of Economics.
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    land tenancy; contract choice; game theory;
    All these keywords.

    JEL classification:

    • C7 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory
    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty

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