Customs and incentives in contracts

Douglas W. Allen, Dean Lueck

Research output: Contribution to journalArticlepeer-review

5 Scopus citations

Abstract

This article examines contractual practices that are often assumed customary. In particular it examines discreteness in agricultural contracts, and focuses on the distinction between the use of simple discrete fraction terms in cropshare contracts and the nearly continuous payment terms used in cash rent contracts. We show that the pattern of shares is best explained as a response to moral hazard problems spread over large numbers of inputs. A contracting model explains the pattern of shares, the difference in flexibility with cash rent contracts, and the lower bound on shares. Empirical analysis using micro data on over 3,000 contracts are used to test implications of the model. A wide range of support is found for a model based on moral hazard and measurement costs.

Original languageEnglish (US)
Pages (from-to)880-894
Number of pages15
JournalAmerican Journal of Agricultural Economics
Volume91
Issue number4
DOIs
StatePublished - 2009

Keywords

  • Contracts
  • Cropshare
  • Custom
  • Incentives

ASJC Scopus subject areas

  • Agricultural and Biological Sciences (miscellaneous)
  • Economics and Econometrics

Fingerprint Dive into the research topics of 'Customs and incentives in contracts'. Together they form a unique fingerprint.

Cite this