Implications of Agency Theory for Optimal Land Tenure Contracts

Huffman, Wallace E.; Just, Richard E.

doi:10.1086/420685

Cited by 22 publications

(23 citation statements)

References 42 publications

(62 reference statements)

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“…As a result of this ongoing dynamic process, tenants in the United States are more likely to be less risk averse than landlords. The results of the Huffman and Just (2004) paper imply that both landlord and tenant attributes are key determinants of optimal tenure contract choice. Other than the riskiness of the contracted activity, recent tenancy contract studies by Allen and Lueck (2002), Ackerberg and Botticini (2002), Moss and Barry (2002), Laffont and Matoussi (1995), and Bierlen, Parsch, and Dixon (1999) do not address risk aversion of landlords.…”

Section: Literature Reviewmentioning

confidence: 96%

“…In contrast, Huffman and Just (2004) permit landlords to be heterogeneous not only in the riskiness of the task that they contract, but also in attitudes toward risk, being possibly risk averse. They also permit tenants to be heterogeneous in ability, cost of effort, and reservation utility.…”

Section: Literature Reviewmentioning

confidence: 99%

“…In a standard principalagent model where the principal is risk neutral, the agent is risk averse and production is stochastic, the optimal contract is incentive compatible, and the incentive for agent's effort is strengthened as the agent becomes less risk averse, other things equal (Holmstrom 1979). Building upon this methodology, Huffman and Just (2004) show that a richer specification of the principal-agent model provides a superior model for explaining a set of six stylized facts that emerge from the land tenancy literature. In their model, agents are heterogeneous not only in risk aversion, but also in productivity, cost of effort, and reservation utility, and principals are heterogeneous in the task to be contracted but also may be more risk averse than agents in developed countries like the United States.…”

mentioning

confidence: 96%

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The Role of Risk and Transaction Costs in Contract Design: Evidence from Farmland Lease Contracts in U.S. Agriculture

Fukunaga¹,

Huffman

2009

American J Agri Economics

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The objective of this article is to provide new empirical evidence on landlord-tenant choices of share versus cash-rent contracts in U.S. agriculture. The focus is on the contribution of explanatory variables that represent transaction costs, risk-sharing incentives, or both. An empirical model of contract choice is tested against the 1999 Agricultural Economics and Land Ownership Survey (AELOS) and finds mixed evidence for low transaction cost and risk-sharing-incentive motives for landlord-tenant choices of a share versus cash-rent contract. However, the behavior of landlords and tenants is consistent with them being risk averse. Although it is standard to control for the riskiness of the principal's task that is contracted, we find that other attributes of the landlord are an important part of a relatively complex story for U.S. land tenancy contacting. The latter results have generally been ignored in other published landlord-tenant contracting studies. Copyright 2009, Oxford University Press.

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Section: Literature Reviewmentioning

confidence: 96%

Section: Literature Reviewmentioning

confidence: 99%

mentioning

confidence: 96%

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The Role of Risk and Transaction Costs in Contract Design: Evidence from Farmland Lease Contracts in U.S. Agriculture

Fukunaga¹,

Huffman

2009

American J Agri Economics

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“…For example, the risk preferences of the contractor (principal), which are also largely unobserved and for which proxies do not exist in the ARMS data, have been shown to impact the attributes of land-tenure contracts observed in practice (Fukunaga and Huffman, 2009;Huffman and Just, 2004;Rainey et al, 2005). Monopoly power of the contractor might also limit the menu of contract options available to producers as well as their negotiating power with respect to contract terms.…”

Section: Discussionmentioning

confidence: 99%

“…For example, income, wealth, age, off-farm income, and the debt-to-asset ratio are often used as proxies for risk aversion (Huffman and Just, 2004;Mishra and El-Osta, 2002;Allen and Lueck, 1999;Lajili et al, 1997;Smith and Baquet, 1996), while education and experience are commonly used proxies for risk-aversion (Velandia et al, 2009;Sherrick et al, 2004) and farm-level productivity (Lockheed et al, 1980). Succinctly, the problem with estimating (3) by means of standard methods (e.g., OLS) is that the coefficients are biased if agents endogenously match with activities and/or principals.…”

Section: Methodology and Datamentioning

confidence: 99%

An Empirical Analysis of the Determinants of Marketing Contract Structures for Corn and Soybeans

Paulson¹,

Katchova²,

Lence³

2010

Journal of Agricultural &Amp; Food Industrial Organization

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Contracts serve as coordination mechanisms which allocate value, risk, and decision rights across buyers and sellers. The use of marketing contracts in agriculture, specifically for crop production, has been increasing over the past decade. This study investigates the determinants of agricultural marketing contract design employing data from the USDA's Agricultural Resource Management Survey. Models are estimated to analyze the association between producer and contractor characteristics, the decision to produce under contract, and the types of contract structures observed in practice, while controlling for the potential for endogenous matching between contracting parties. Results indicate that while certain producer characteristics are significantly associated with the decision to produce corn or soybeans under contract, there is no significant association between those characteristics and specific contract attributes. AbstractContracts serve as coordination mechanisms which allocate value, risk, and decision rights across buyers and sellers. The use of marketing contracts in agriculture, specifically for crop production, has been increasing over the past decade. This study investigates the determinants of agricultural marketing contract design employing data from the USDA's Agricultural Resource Management Survey. Models are estimated to analyze the association between producer and contractor characteristics, the decision to produce under contract, and the types of contract structures observed in practice, while controlling for the potential for endogenous matching between contracting parties. Results indicate that while certain producer characteristics are significantly associated with the decision to produce corn or soybeans under contract, there is no significant association between those characteristics and specific contract attributes.

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Contractual Farming Arrangements, Quality Control, Incentives, and Distribution Failure in Kenya's Smallholder Horticulture: A Multivariate Probit Analysis

Kariuki

Loy

2016

Agribusiness

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With the rapid growth of horticultural value chains, the use of contractual farming arrangements, strategies of quality control (farm audits/crop rejections), pricing incentives, and distribution efficiencies (crop collection arrangements) are increasingly breaking market barriers, for example, private standards, certification, traceability, and supply reliability in developing countries. Cognizant of market access, farm produce value, sustainable production, and reduction of postharvest losses, this paper investigated whether farm size, schooling, producer price, farm visits, and social capital networks condition these strategies. The results show that use of written contracts is conditioned by farm sizes, more extension, and number of producer groups (PGs) while farm certification is positively predicted by farm sizes, more extension, number of sellers in the village and seasons with the same buyer. However, certification is less responsive to producer prices. Crop rejections are predicted to be less depending on a farmer's education, number of PGs, and the producer price but are more likely to increase the more the number of sellers. Further, the results show that a forward pricing incentive is highly correlated with higher producer prices, more extension, and number of seasons with the same buyer. Finally, uncollected produce at harvest is likely to decrease with farm sizes, more education and extension, higher producer price, number of PGs, and seasons with the same buyer but is more likely to increase the higher the number of sellers. Implications are made.

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Implications of Agency Theory for Optimal Land Tenure Contracts

Cited by 22 publications

References 42 publications

The Role of Risk and Transaction Costs in Contract Design: Evidence from Farmland Lease Contracts in U.S. Agriculture

The Role of Risk and Transaction Costs in Contract Design: Evidence from Farmland Lease Contracts in U.S. Agriculture

An Empirical Analysis of the Determinants of Marketing Contract Structures for Corn and Soybeans

Contractual Farming Arrangements, Quality Control, Incentives, and Distribution Failure in Kenya's Smallholder Horticulture: A Multivariate Probit Analysis

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