Searching for Ratchet Effects in Agricultural Contracts

Douglas W. Allen, Dean L Lueck

Research output: Contribution to journalArticle

10 Citations (Scopus)

Abstract

In a dynamic contracting environment, increasing standards over time in light of past performance is known as the ratchet effect. Despite the recent theoretical attention given to the ratchet effect, models that include these effects have not been empirically tested against contract data. In this study, we use farm-level data on modern Great Plains agricultural cash rent and cropshare contracts to test for the presence of ratchet effects in the context of a principal-agent model with moral hazard. We find limited evidence for the ratchet effect within share contracts, and no evidence that it is important for the choice of contract between cash rent and cropshare.

Original languageEnglish (US)
Pages (from-to)536-552
Number of pages17
JournalJournal of Agricultural and Resource Economics
Volume24
Issue number2
StatePublished - Dec 1999
Externally publishedYes

Fingerprint

cash rents
farms
testing
effect
contract
Ratchet effect
Agricultural contracts
hazard
farm

Keywords

  • Moral hazard
  • Principal-agent model
  • Ratchet effect

ASJC Scopus subject areas

  • Aquatic Science

Cite this

Searching for Ratchet Effects in Agricultural Contracts. / Allen, Douglas W.; Lueck, Dean L.

In: Journal of Agricultural and Resource Economics, Vol. 24, No. 2, 12.1999, p. 536-552.

Research output: Contribution to journalArticle

@article{1b4dc2cbe012496fad38ceaee278753a,
title = "Searching for Ratchet Effects in Agricultural Contracts",
abstract = "In a dynamic contracting environment, increasing standards over time in light of past performance is known as the ratchet effect. Despite the recent theoretical attention given to the ratchet effect, models that include these effects have not been empirically tested against contract data. In this study, we use farm-level data on modern Great Plains agricultural cash rent and cropshare contracts to test for the presence of ratchet effects in the context of a principal-agent model with moral hazard. We find limited evidence for the ratchet effect within share contracts, and no evidence that it is important for the choice of contract between cash rent and cropshare.",
keywords = "Moral hazard, Principal-agent model, Ratchet effect",
author = "Allen, {Douglas W.} and Lueck, {Dean L}",
year = "1999",
month = "12",
language = "English (US)",
volume = "24",
pages = "536--552",
journal = "Journal of Agricultural and Resource Economics",
issn = "1068-5502",
publisher = "Colorado State University",
number = "2",

}

TY - JOUR

T1 - Searching for Ratchet Effects in Agricultural Contracts

AU - Allen, Douglas W.

AU - Lueck, Dean L

PY - 1999/12

Y1 - 1999/12

N2 - In a dynamic contracting environment, increasing standards over time in light of past performance is known as the ratchet effect. Despite the recent theoretical attention given to the ratchet effect, models that include these effects have not been empirically tested against contract data. In this study, we use farm-level data on modern Great Plains agricultural cash rent and cropshare contracts to test for the presence of ratchet effects in the context of a principal-agent model with moral hazard. We find limited evidence for the ratchet effect within share contracts, and no evidence that it is important for the choice of contract between cash rent and cropshare.

AB - In a dynamic contracting environment, increasing standards over time in light of past performance is known as the ratchet effect. Despite the recent theoretical attention given to the ratchet effect, models that include these effects have not been empirically tested against contract data. In this study, we use farm-level data on modern Great Plains agricultural cash rent and cropshare contracts to test for the presence of ratchet effects in the context of a principal-agent model with moral hazard. We find limited evidence for the ratchet effect within share contracts, and no evidence that it is important for the choice of contract between cash rent and cropshare.

KW - Moral hazard

KW - Principal-agent model

KW - Ratchet effect

UR - http://www.scopus.com/inward/record.url?scp=0033419196&partnerID=8YFLogxK

UR - http://www.scopus.com/inward/citedby.url?scp=0033419196&partnerID=8YFLogxK

M3 - Article

VL - 24

SP - 536

EP - 552

JO - Journal of Agricultural and Resource Economics

JF - Journal of Agricultural and Resource Economics

SN - 1068-5502

IS - 2

ER -