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Customs and Incentives in Contracts

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  • Douglas W. Allen
  • Dean Lueck

Abstract

This article examines contractual practices that are often assumed customary. In particular it examines discreteness in agricultural contracts, and focuses on the distinction between the use of simple discrete fraction terms in cropshare contracts and the nearly continuous payment terms used in cash rent contracts. We show that the pattern of shares is best explained as a response to moral hazard problems spread over large numbers of inputs. A contracting model explains the pattern of shares, the difference in flexibility with cash rent contracts, and the lower bound on shares. Empirical analysis using micro data on over 3,000 contracts are used to test implications of the model. A wide range of support is found for a model based on moral hazard and measurement costs. Copyright 2009, Oxford University Press.

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  • Douglas W. Allen & Dean Lueck, 2009. "Customs and Incentives in Contracts," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 91(4), pages 880-894.
    • Handle: RePEc:oup:ajagec:v:91:y:2009:i:4:p:880-894
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    File URL: http://hdl.handle.net/10.1111/j.1467-8276.2009.01322.x
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    Cited by:

    1. Bell, Peter Newton, 2014. "Effects of streaming loans for commodity producers," MPRA Paper 59818, University Library of Munich, Germany.
    2. Sacha Kapoor, 2020. "Inefficient incentives and nonprice allocations: Experimental evidence from big‐box restaurants," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 29(2), pages 401-419, April.
    3. Allen Douglas W. & Lueck Dean, 2018. "The Insight and the Legacy of the Theory of Share Tenancy," Man and the Economy, De Gruyter, vol. 5(1), pages 1-12, June.

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