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The Nature of the Farm: Contracts, Risk, and Organization in Agriculture

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Overview

The Nature of the Farm is a theoretical and empirical study of contracts and organization in agriculture based on the transaction cost framework. Transaction costs are important in agriculture because nature (for example, seasonality,weather, pests) plays such a critical role in determining output and limiting the ability of farmers to specialize. The book develops specific models and tests the implications of those models against data sets from across North American agriculture, as well as against historical case studies such as eighteenth-century European land contracts and the late nineteenth-century Bonanza farms in the United States.The book is organized in three parts. Part I examines the classic question of what determines the optimal choice between fixed rent and cropshare arrangements,concluding that it is determined by a trade-off between incentives to overuse rented land and incentives to underreport shared output. Part II tests several predictions derived from a standard risk-sharing model of contracts and finds little evidence that risk sharing is important in contract choice. Part III extends the transaction costs analysis to broader organizational issues. It introduces seasonality and timeliness costs as forces influencing the gains from specialization and the costs of contracting, and finds that farm ownership and farm organization are routinely shaped by these forces.

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Editorial Reviews

From the Publisher
"A coherent and largely persuasive case for... the transaction cost approach to farm organization over the principal-agent paradigm." Journal of Economics
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Product Details

  • ISBN-13: 9780262511858
  • Publisher: MIT Press
  • Publication date: 9/1/2004
  • Edition description: New Edition
  • Pages: 266
  • Product dimensions: 7.00 (w) x 9.00 (h) x 0.60 (d)

Meet the Author

Douglas W. Allen is Endowed University Professor in the Department of Economics at Simon Fraser University.

Dean Lueck is Cardon Professor of Agricultural and Resource Economics at the University of Arizona.

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Table of Contents

Preface
1 Introduction 1
2 Farming in North America 17
I Contracts and the Transaction Cost Framework 31
3 The Simplicity of Agricultural Contracts 33
4 Choosing between Cropshare and Cash Rent Contracts 49
5 Sharing Inputs and Outputs 69
II Risk Sharing as an Alternative Framework 93
6 Risk Sharing and the Choice of Contract 95
7 Ratchet Effects in Agricultural Contracts 121
III Extending the Framework: Farm Organization 137
8 Ownership versus Contracting for the Control of Assets 139
9 Farm Organization and Vertical Control 167
10 Conclusion 199
App. A: Data 205
App. B: Mathematical 219
Notes 223
References 243
Index 255
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