Agriculture Reference
In-Depth Information
lease of equipment to the farmer. Furthermore, most cutting bosses assign an operator to a
specific machine for the entire season in order to increase the operator's incentive to prop-
erly use and maintain his equipment. The most important moral hazard cost has to do with
the effort of the cutting crew and requires monitoring by the farmer. Because the cutter does
not own the crop output, and because his compensation does not importantly depend on it,
the cutter has an incentive to do less than a first-best job. 33 Cutters may spill grain in the
fields, leave isolated fields uncut, and inefficiently thresh the grain. 34
These incentive effects inherent in custom combining can be summarized. First, the
probability that a farmer will choose custom combining (over self-combining) increases
as specialization gains increase. Second, the probability that a farmer will choose custom
combining (over self-combining) increases as timeliness costs decrease. Third, the proba-
bility that a farmer will choose custom combining (over self-combining) increases as moral
hazard costs decrease.
Once the basic structure of custom combining is understood it is clear that our model
of a trade-off between specialization gains and the costs of timeliness and moral hazard is
supported. In addition to the basic structure of the industry, a number of facts about the
extent and details of custom combining provide more support.
First, extensive migratory custom combining is not found outside the Great Plains'
wheat belt because no other region can match the geographic contiguousness of the Great
Plains that substantially reduces timeliness costs. 35 Second, a smaller fraction of wheat is
custom harvested on the northern plains (for example, the Dakotas) than is in the central
and southern plains (for example, Kansas, Oklahoma). Two reasons seem to explain this
differential. Northern farmers are more diversified into other small grains, which extends
the length of their overall harvest season, thus allowing them to make more intensive use
of their own combines. The northern reaches are also home to spring wheat, which ripens
much more unevenly and often needs to be cut by a windrower before being combined.
Windrowing has two effects on the use of custom work. It requires cutters to haul pickup
“headers” north just for use during the last few weeks of work and it adds a new moral
hazard dimension. With windrows cutters can be subjected to unknown hazards, such as
small animals, rocks, and wire that can damage their machines.
Third, those Texas wheat farmers who also grow cotton use custom cutters relatively more
often. Cotton and wheat require different harvesting machines so the gains from specialized
custom cutters is even larger than for a farmer who specializes in wheat. Fourth, custom
combiners are more intensively hired by “small” and “large” farmers, but not “middle” size
ones. 36 As Isern (1981) notes:
Farmers with only small acreage, perhaps a quarter or half section, employed custom cutters because
combines were inordinate investments for them....Bigfarmers found that harvesting their crops re-
quired enormous amounts of capital and troublesome dealings with labor....Bigfarmers, therefore,
Search WWH ::




Custom Search