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Contract Duration and the Division of Labor in Agricultural Land Leases

Paper:ewp-othr/0506011
From:    
Date: Tue, 28 Jun 2005 12:34:25 -0500

Title: Contract Duration and the Division of Labor in Agricultural Land Leases
Author: Jonathan Yoder (Washington State University) and Ishrat Hossain (U. Technology, Sydney, Australia) and Francis Eppin (Oklahoma State University)
Contact:
Comments: Type of Document - pdf; pages: 39
Keywords: land lease contracts, moral hazard, contract duration, division of labor
JEL: J43, L23, Q15
EWPA-references:

Abstract:

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.

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