Agriculture Reference
In-Depth Information
chose to employ custom cutters....Farmers with acreage falling in the middle range tended to do
more of their own harvesting. They had enough use to justify owning combines, but not so much that
they could not find and manage sufficient help for harvest. (Pp. 73-74)
Finally, farmers with lower human capital are more likely to use custom combines, as Isern
(1981) also notes: “Part-time farmers especially favored custom cutters because their other
work prevented them from supplying the concentrated effort required for the harvest. The
same was true for farmers on the verge of retirement” (73).
The annual migration of custom harvesters is, in many ways, a remarkable phenomenon
of decentralized market coordination (Hayek 1945) and contracting under highly uncertain
conditions.
37
Given the huge gains from specialization in harvesting technology, the limited
use of custom cutters gives some indication of the tremendous timeliness costs.
38
Indeed,
Ellouise House, executive secretary of the U.S. Custom Harvesters Association, sums up
the economic problem: “More and more farmers would hire them (custom harvesters) if
there was just some way to guarantee that they could be there at a given time.”
39
8.4
Summary
In this chapter we have developed a model that explains the control of farm assets through
ownership and contracting. Both ownership and contracting are costly because of moral
hazard, timeliness costs, specialization opportunities, and capital constraints. Our model
incorporates these costs and incentives into our analysis, and it further demonstrates the
benefits of the transaction cost approach, by slightly modifying the first model developed
in chapter 4.
Once again, our empirical work generally supports our model. First, we observe that
greater moral hazard costs increase the probability of ownership. This is true for land in the
case of crops with soil exploitation and underreporting problems, and true for buildings with
complicated uses. Second, we observe that greater specialization gains lead to an increase in
contracting. For land, widows, absentee landowners, and inexperienced landowners tended
to rent; and for equipment, custom combining is used extensively in the harvest of wheat
on the Great Plains. Third, timeliness costs increases the probability of ownership and
long-term contracting. For equipment and land contracts, this is important. For land, all
contracts are long-term, which mitigate the potentially large timeliness costs between stages
of production. For equipment, specialized and necessary pieces of equipment are owned,
while redundant and shared equipment is more likely rented. Fourth for all of the assets we
examine, a relaxed capital constraint increased the chance of ownership. Finally, the only
real evidence of specific assets we find that influences the choice of ownership is that of
building on rented land. The ownership of buildings is strongly tied to the ownership of
land.
