Agriculture Reference
In-Depth Information
Valuable general-use buildings are less likely to be leased because they are more suscepti-
ble to exploitation by the farmer. Older buildings are more likely to be leased. The estimated
coefficient for RENTED LAND, which is positive and statistically significant, supports our
predictions about the role of specific assets.
Table 8.6 also shows the coefficient estimates for several control variables. FARM SALES
controls for the size and value of the farm. The estimated coefficients indicate that farm
size is positively related to building leasing. The estimated coefficients for EDUCATION
are positive and statistically significant. The estimated coefficient for WORKERS indicates
that the number of farm workers has no impact on the probability of leasing buildings.
BUILDING SIZE (positively related to leasing) and BUILDING VALUE (negatively re-
lated to leasing) are used as controls. BUILDING VALUE might be interpreted as a moral
hazard variable. For example, more valuable buildings are more costly to lease because their
damage is great.
Summary of Econometric Evidence
Our econometric analysis of leasing versus ownership for buildings, equipment, and land
generally supports our model of asset control. All of our estimates support our prediction
about the role of capital constraints on the probability of ownership.
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Variables measuring
asset moral hazard are important for buildings and land. For equipment, however, asset
moral hazard is less important while estimates of the effects of our measure of timeliness
costs support our model. Although these estimates give support to our model, they have two
limits. First, most of the variables do not precisely measure incentive effects but rather are
reasonable approximations of conditions under which these incentive effects vary. Second,
these estimates examined only a subset of the possible asset control regimes, completely
ignoring custom contracts that are increasingly common in modern farming. Because of
these limits we now turn to a case study examination of custom wheat harvesting.
Custom Combining: A Case Study of Short-Term Custom Leasing
Custom contracting has long been a part of agriculture.
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Farmers hire custom firms for
baling, cultivating, fertilizer and pesticide application, feed grinding, fencing, hauling, land
clearing, planting, plowing, and seed cleaning (Strickler, Smith, and Walker 1966). By far,
the most historically significant custom contracting is for grain harvesting. And by far the
most important custom grain harvesting is the 1,000 mile south-north migration of wheat
harvesters that takes place on the Great Plains. A 1971 study by the USDA showed that
nearly 3,500 custom cutters harvested 35 percent of the wheat on the Great Plains (Lagrone
and Gavett 1975). In 1997, roughly 2,000 custom cutters harvested one-half of the nations
wheat crop (DuBow 1999). Overall, however, all custom work comprises just 2 percent of
all U.S. farm expenses.
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Although some cutters work only locally, more than 90 percent
make the long interstate journeys. In this section we examine the historical development and
