IDEAS home Printed from https://ideas.repec.org/p/fth/bosecd/92.html
   My bibliography  Save this paper

Endogenous Matching and the Empirical Determinants of Contract Form

Author

Listed:
  • Daniel A. Ackerberg
  • Maristella Botticini

Abstract

Theoretical work on contracts often identifies an "optimal" contract as a function of the characteristics of the principal and agent who are contracting. Correspondingly, empirical work on contracts often regresses contract form on observed (by the econometrician) characteristics of the principal and agent. This paper examines the econometric implications when some of the theoretically relevant characteristics are partially observed (e.g. proxied) or unobserved. We show that if there are incentives wehreby particular types of agents end up contracting (i.e. matching) with particular types of principals (and we argue that there are), one may end up with estimated co-efficients on the observed characteristics that are misleading. The problem is that this matching generates correlation between observable characteristics of one party and proxy errors of the other party, causing biases in many or all coefficients of interest. We then suggest a number of solutions to this problem, applying these solutins to a historical dataset on agricultural contracts between landlords and tenants in 15th Century Tuscany.

Suggested Citation

  • Daniel A. Ackerberg & Maristella Botticini, 1999. "Endogenous Matching and the Empirical Determinants of Contract Form," Boston University - Institute for Economic Development 92, Boston University, Institute for Economic Development.
    • Handle: RePEc:fth:bosecd:92
    as

    Download full text from publisher

    To our knowledge, this item is not available for download. To find whether it is available, there are three options:
    1. Check below whether another version of this item is available online.
    2. Check on the provider's web page whether it is in fact available.
    3. Perform a search for a similarly titled item that would be available.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Reid, Joseph D., 1973. "Sharecropping As An Understandable Market Response: The Post-Bellum South," The Journal of Economic History, Cambridge University Press, vol. 33(1), pages 106-130, March.
    2. Robert Shimer & Lones Smith, 2000. "Assortative Matching and Search," Econometrica, Econometric Society, vol. 68(2), pages 343-370, March.
    3. Dubois, Pierre, 2002. "Moral hazard, land fertility and sharecropping in a rural area of the Philippines," Journal of Development Economics, Elsevier, vol. 68(1), pages 35-64, June.
    4. Sengupta, Kunal, 1997. "Limited liability, moral hazard and share tenancy," Journal of Development Economics, Elsevier, vol. 52(2), pages 393-407, April.
    5. Brickley, James A. & Dark, Frederick H., 1987. "The choice of organizational form The case of franchising," Journal of Financial Economics, Elsevier, vol. 18(2), pages 401-420, June.
    6. Eswaran, Mukesh & Kotwal, Ashok, 1985. "A Theory of Contractual Structure in Agriculture," American Economic Review, American Economic Association, vol. 75(3), pages 352-367, June.
    7. repec:bla:econom:v:63:y:1996:i:251:p:445-57 is not listed on IDEAS
    8. Francine Lafontaine & Margaret E. Slade, 1997. "Retail Contracting: Theory and Practice," Journal of Industrial Economics, Wiley Blackwell, vol. 45(1), pages 1-25, March.
    9. Hoffman, Philip T., 1984. "The Economic Theory of Sharecropping in Early Modern France," The Journal of Economic History, Cambridge University Press, vol. 44(2), pages 309-319, June.
    10. Jean-Jacques Laffont & Mohamed Salah Matoussi, 1995. "Moral Hazard, Financial Constraints and Sharecropping in El Oulja," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 62(3), pages 381-399.
    11. Epple, Dennis, 1987. "Hedonic Prices and Implicit Markets: Estimating Demand and Supply Functions for Differentiated Products," Journal of Political Economy, University of Chicago Press, vol. 95(1), pages 59-80, February.
    12. William Hallagan, 1978. "Self-Selection by Contractual Choice and the Theory of Sharecropping," Bell Journal of Economics, The RAND Corporation, vol. 9(2), pages 344-354, Autumn.
    13. Basu, Kaushik, 1992. "Limited liability and the existence of share tenancy," Journal of Development Economics, Elsevier, vol. 38(1), pages 203-220, January.
    14. Allen, Franklin, 1985. "On the Fixed Nature of Sharecropping Contracts," Economic Journal, Royal Economic Society, vol. 95(377), pages 30-48, March.
    15. Braverman, Avishay & Stiglitz, Joseph E, 1982. "Sharecropping and the Interlinking of Agrarian Markets," American Economic Review, American Economic Association, vol. 72(4), pages 695-715, September.
    16. Brandt, Loren & Hosios, Arthur J, 1996. "Credit, Incentives, and Reputation: A Hedonic Analysis of Contractual Wage Profiles," Journal of Political Economy, University of Chicago Press, vol. 104(6), pages 1172-1226, December.
    17. Martin, Robert E, 1988. "Franchising and Risk Management," American Economic Review, American Economic Association, vol. 78(5), pages 954-968, December.
    18. Botticini, Maristella, 2000. "A Tale of “Benevolent” Governments: Private Credit Markets, Public Finance, and the Role of Jewish Lenders in Medieval and Renaissance Italy," The Journal of Economic History, Cambridge University Press, vol. 60(1), pages 164-189, March.
    19. Holmstrom, Bengt & Milgrom, Paul, 1987. "Aggregation and Linearity in the Provision of Intertemporal Incentives," Econometrica, Econometric Society, vol. 55(2), pages 303-328, March.
    20. Lafontaine, Francine & Bhattacharyya, Sugato, 1995. "The role of risk in franchising," Journal of Corporate Finance, Elsevier, vol. 2(1-2), pages 39-74, October.
    21. Canice Prendergast, 2002. "The Tenuous Trade-off between Risk and Incentives," Journal of Political Economy, University of Chicago Press, vol. 110(5), pages 1071-1102, October.
    22. Leffler, Keith B & Rucker, Randal R, 1991. "Transactions Costs and the Efficient Organization of Production: A Study of Timber-Harvesting Contracts," Journal of Political Economy, University of Chicago Press, vol. 99(5), pages 1060-1087, October.
    23. Carmona, Juan & Simpson, James, 1999. "The “Rabassa Morta” in Catalan Viticulture: The Rise and Decline of a Long-Term Sharecropping Contract, 1670s–1920s," The Journal of Economic History, Cambridge University Press, vol. 59(2), pages 290-315, June.
    24. repec:bla:econom:v:65:y:1998:i:260:p:535-56 is not listed on IDEAS
    25. Fenoaltea, Stefano, 1984. "Slavery and Supervision in Comparative Perspective: A Model," The Journal of Economic History, Cambridge University Press, vol. 44(3), pages 635-668, September.
    26. Alston, Lee J. & Higgs, Robert, 1982. "Contractual Mix in Southern Agriculture since the Civil War: Facts, Hypotheses, and Tests," The Journal of Economic History, Cambridge University Press, vol. 42(2), pages 327-353, June.
    27. Allen, Douglas & Lueck, Dean, 1992. "Contract Choice in Modern Agriculture: Cash Rent versus Cropshare," Journal of Law and Economics, University of Chicago Press, vol. 35(2), pages 397-426, October.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Ackerberg, Daniel A. & Botticini, Maristella, 2000. "The Choice of Agrarian Contracts in Early Renaissance Tuscany: Risk Sharing, Moral Hazard, or Capital Market Imperfections?," Explorations in Economic History, Elsevier, vol. 37(3), pages 241-257, July.
    2. Sen, Debapriya, 2011. "A theory of sharecropping: The role of price behavior and imperfect competition," Journal of Economic Behavior & Organization, Elsevier, vol. 80(1), pages 181-199.
    3. Jiancai PI, 2016. "Altruism, moral hazard, and sharecropping," Agricultural Economics, Czech Academy of Agricultural Sciences, vol. 62(12), pages 575-584.
    4. Jiancai PI, 2013. "An organizational economics approach to the existence of sharecropping," Agricultural Economics, Czech Academy of Agricultural Sciences, vol. 59(11), pages 537-541.
    5. Oriana Bandiera, 1999. "On the Structure of Tenancy contracts: Theory and Evidence fron 19th Century Rural Sicily," STICERD - Development Economics Papers - From 2008 this series has been superseded by Economic Organisation and Public Policy Discussion Papers 19, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
    6. Huffman, Wallace E & Just, Richard E, 2004. "Implications of Agency Theory for Optimal Land Tenure Contracts," Economic Development and Cultural Change, University of Chicago Press, vol. 52(3), pages 617-642, April.
    7. Ananish Chaudhuri & Pushkar Maitra, 1997. "Determinants of Land Tenure Contracts; Theory and Evidence from Rural India," Departmental Working Papers 199710, Rutgers University, Department of Economics.
    8. Bruno Gabriel Witzel de Souza, 2024. "‘The same contract that is suitable for your Excellency’: Immigration and emulation in the adoption of sharecropping‐cum‐debt arrangements in Brazil (1835‒80)," Economic History Review, Economic History Society, vol. 77(2), pages 612-643, May.
    9. Luis H.B. Braido, 2005. "Risk and Insurance in Sharecropping," Risk and Insurance 0508002, University Library of Munich, Germany.
    10. Affuso, L., 2000. "Intra-Firm Retail Contracting: Survey Evidence from the UK'," Cambridge Working Papers in Economics 0022, Faculty of Economics, University of Cambridge.
    11. Ananish Chaudhuri, 1997. "A Dynamic Model of Contractual Choice in Tenancy," Departmental Working Papers 199711, Rutgers University, Department of Economics.
    12. Debapriya Sen, 2005. "Sharecropping, interlinkage, and price variation," Department of Economics Working Papers 05-10, Stony Brook University, Department of Economics.
    13. Raul V. Fabella, 2016. "Why Fixed Rent Contracts are Less Prevalent: Weak Third Party Enforcement and Endogenous Principal Type," UP School of Economics Discussion Papers 201606, University of the Philippines School of Economics.
    14. Benito Arruñada & Manuel González, 1997. "How competition controls team production: The case of fishing firms," Economics Working Papers 261, Department of Economics and Business, Universitat Pompeu Fabra.
    15. Ghatak, Maitreesh & Pandey, Priyanka, 2000. "Contract choice in agriculture with joint moral hazard in effort and risk," Journal of Development Economics, Elsevier, vol. 63(2), pages 303-326, December.
    16. Yutaka ARIMOTO & Tetsuji OKAZAKI & Masaki NAKABAYASHI, 2010. "Agrarian Land Tenancy In Prewar Japan: Contract Choice And Implications On Productivity," The Developing Economies, Institute of Developing Economies, vol. 48(3), pages 293-318, September.
    17. M. A. Taslim, 1992. "A Survey of Theories of Cropshare Tenancy," The Economic Record, The Economic Society of Australia, vol. 68(3), pages 254-275, September.
    18. Fukunaga, Keita & Hueth, Brent, 2006. "Contractual Externalities and Contract Design -Evidence from Farmland Lease Contracts in U.S. Agriculture," 2006 Annual meeting, July 23-26, Long Beach, CA 21368, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    19. Francine Lafontaine & Kathryn L. Shaw, 1999. "The Dynamics of Franchise Contracting: Evidence from Panel Data," Journal of Political Economy, University of Chicago Press, vol. 107(5), pages 1041-1080, October.
    20. Francine Lafontaine & Kathryn L. Shaw, 2005. "Targeting Managerial Control: Evidence from Franchising," RAND Journal of Economics, The RAND Corporation, vol. 36(1), pages 131-150, Spring.

    More about this item

    JEL classification:

    • C50 - Mathematical and Quantitative Methods - - Econometric Modeling - - - General

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:fth:bosecd:92. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Thomas Krichel (email available below). General contact details of provider: https://edirc.repec.org/data/iedbuus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.