Agriculture Reference
In-Depth Information
Table 8.2
Incentives under various ownership and contracting regimes
Effort
Asset
Effort
Asset
Timeliness
Capital
moral
moral
specialization
specialization
costs
constraints
hazard
hazard
Ownership
Pure family farm
No
No
No
No
No
No
Family farm
No
No
No
No
No
Yes
(borrowing)
Contracting
Short-term
Yes
No
Yes
Yes
Yes
No
custom contract
Short-term
No
Yes
No
Yes
Yes
No
simple contract
Long-term
No
Yes
No
Yes
No
No
simple contract
PREDICTION 8.3a
The greater the timeliness costs, the more likely ownership will be
chosen.
PREDICTION 8.3b When contracting dominates ownership, long-term leases are more
likely to be chosen as timeliness costs increase.
PREDICTION 8.4
The greater the capital constraints, the more likely contracting will be
chosen.
Because our model in this chapter examines five situations—cases 1 (with two types),
2, 4, and 5—and incorporates several incentive margins, it is not possible to unambigu-
ously rank each of the possible regimes as incentive effects change. This ambiguity arises
because it is impossible to compare the magnitudes of various effects without explicit struc-
ture on moral hazard costs, specialization gains, timeliness costs, and capital constraints.
Instead, we use our general propositions to generate specific empirical predictions. In our
applications, reality has narrowed the selection of actual asset control choices, often to sim-
ple dichotomies that allow clear comparison of key incentive effects. In particular, in our
econometric analysis we examine the choice between owning and leasing assets such as
buildings, equipment, and land.
8.3
Empirical Analysis: Owning versus Contracting
In this section we test some of the implications derived from our model of asset control. The
costs of contracting and ownership are determined by specific factors like location, crop, and
