Structuring contracts to share risk in light of incentive problems is the central premise of contract theory, yet the risk-sharing implications have rarely been thoroughly tested using micro-level contract data. In this article we test the major implications of a principal-agent model of contracts using detailed data on more than 4000 individual contracts from modern North American agriculture. On a case-by-case basis, our evidence fails to support the standard principal-agent model with risk aversion as an explanation of contract choice in modern North American farming. At the same time, we find some support for models that assume risk-neutral contracting parties and stress multiple margins for moral hazard and enforcement costs.
|Original language||English (US)|
|Number of pages||33|
|Journal||Journal of Law, Economics, and Organization|
|State||Published - Oct 1 1999|
ASJC Scopus subject areas
- Economics and Econometrics
- Organizational Behavior and Human Resource Management