Contract Duration and the Division of Labor in Agricultural Land Leases

Short-term contracts provide weak incentives for durable input investment if post-contract asset transfer is difficult. Our model shows that when both agents provide inputs, optimal contract length balances weak incentives of one agent against the other. This perspective broadens the existing contract duration literature, which emphasizes the tradeoff between risk sharing and contract costs. We develop hypotheses and test them based on private grazing contracts from the Southern Great Plains. We find broad support for the implications of our model. For example, landowners provide durable land-specific inputs more often under annual versus multiyear contracts.


Issue Date:
2005
Publication Type:
Working or Discussion Paper
Record Identifier:
http://ageconsearch.umn.edu/record/12962
PURL Identifier:
http://purl.umn.edu/12962
Total Pages:
39
JEL Codes:
J43; L23; Q15
Series Statement:
Working Paper 2005-6




 Record created 2017-04-01, last modified 2018-01-22

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