The purpose of this study is to provide systematic evidence regarding the factors that determine the choice of contracts for land, buildings, equipment, and labor in North American agriculture. To date, economic analysis of contracts has been largely limited to theoretical inquiries. Empirical work has been done with aggregate data or small samples of contract data and has been concentrated in developing countries, but little work has been done using large samples of contracts from modern agriculture. The theoretical literature on contracts has traditionally been dominated by principal-agent models that rely on risk aversion to generate testable predictions. More recently, the transaction cost paradigm has emerged as a theoretical alternative. The proposed study will develop an important data base and test economic theories of contracting, and bridge the gap between theoretical and empirical research. The study will test hypotheses derived from both principal-agent models and transaction-cost models of contracts applied to North American agriculture. From principal-agent theory, hypotheses include: 1) As crop yield output variability increases it is more likely that a share contract will be chosen over a fixed payment contract. 2) As crop output variability increases the share to the farmer will decrease. 3) Under decreasing absolute risk aversion share contracts will be less often used by wealthy farmers. From transaction and monitoring cost theory, hypotheses include: 4) Because highly variable crops have greater monitoring costs, as crop yield output variability increases it is less likely that a cropshare contract will be chosen over a fixed payment contract. 5) The choice between owning and leasing assets will depend on enforcement costs and contract incentives. To test these hypotheses, a large data base on individual contracts for land, labor, buildings, and equipment in North American agriculture will be assembled. Data sources will include: T he 1986 Nebraska and South Dakota Leasing Survey, The 1992 British Columbia Farmland Ownership Areal Leasing Survey, 1979 British Columbia Farming Lease Survey, and The 1992 Louisiana Farmland Ownership and Leasing Survey. Once developed the data will include observations on over 4,000 farmland contracts from over 2,000 farms. It is likely to be the most extensive data set available to study the economics of contracts.
