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Agricultural Contracts and Transaction Costs

In: Handbook of New Institutional Economics

Author

Listed:
  • Douglas W. Allen

    (Simon Fraser University)

  • Dean Lueck

    (Indiana University)

Abstract

Agricultural contracts are agreements between the owners of various inputs over the biological stages of food production. Biological stages of production are often heavily influenced by nature both in terms of random shocks and seasonal constraints. Nature can create large opportunities for transaction costs, constrain production specialization, and impose risk on individuals. This chapter focuses on the two main types of land contracts: cropshares and cash rents. It identifies a number of characteristics of these contracts and their evolution over time. We argue that a transaction cost framework remains the most robust theory to understand the structure of contracts and note that evidence from the past 20 years confirms this. Indeed, the transaction cost model has shown its usefulness in the new environmental literature on soil conservation in light of climate change. Finally, we argue that when market selection effects are considered, the transaction cost model is also consistent with some of the new findings regarding risk aversion and contract choice.

Suggested Citation

  • Douglas W. Allen & Dean Lueck, 2025. "Agricultural Contracts and Transaction Costs," Springer Books, in: Claude Ménard & Mary M. Shirley (ed.), Handbook of New Institutional Economics, edition 0, chapter 27, pages 673-698, Springer.
    • Handle: RePEc:spr:sprchp:978-3-031-50810-3_27
    DOI: 10.1007/978-3-031-50810-3_27
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