Chapter 1: Introduction
1. Legally speaking, a farmland contract is a lease since it falls under property law, not contract law. In this topic,
however, we use the terms interchangeably.
2. Studies of sharecropping are nearly as common as the contracts themselves. Since the original efficiency rationale
for sharecropping (Cheung 1969), early studies have included Allen (1985), Allen and Lueck (1992b, 1993a),
Alston, Datta, and Nugent (1984), Eswaran and Kotwal (1985), Hallagan (1978), Lucas (1979), Newberry and
Stiglitz (1979), Shaban (1987), Stiglitz (1974), while more recent studies include Ghatak and Pandey (2000),
Ackerberg and Botticini (2000), and Ray (1999). See Hayami and Otsuka (1993) or Taslim (1992) for the most
recent surveys of this literature. Cheung (1969) surveys the literature from Smith to his time.
3. Some of this literature is discussed later in this chapter.
4. Most readers are no doubt aware of the connection between Coase's two most famous papers. For a discussion,
see Barzel and Kochin (1992).
5. Cheung solved this problem by incorporating explicitly what has come to be known as an “individual rationality”
constraint in contracting optimization problems.
6. Neihans (1987).
7. See Allen (2000) for a complete discussion of the history and use of the term “transaction costs.”
8. Ironically, when Demsetz (1968) discusses property rights, he uses this definition, even though he maintains his
separate definition of transaction costs.
9. Barzel (1985) is devoted almost entirely to defending this point.
10. The empirical successes of the transaction cost literature are also important and discussed below on specific
11. This approach is also implicit in Coase (1960). See Milgrom and Roberts (1992) for a critique.
12. This approach also renders suspect the literature on “Marshallian efficiency,” which purports to test whether
or not share contracts are efficient (Nabi 1986, Shaban 1987). If contracts are chosen to maximize expected joint
value, then little insight is gained when examining efficiency by focusing on the use of a single input or output. In
this paradigm, all contracts will generate a different set of inputs and output choices.
13. This approach has its origins in measurement and monitoring costs (Barzel 1982a; Lazear 1986). It is also
related to the multitask literature begun with Holmstrom and Milgrom (1991).
14. Although, interestingly, J. S. Mill and early agricultural economists of the twentieth century were keenly aware
15. Barzel (1997, chap. 3) discusses these issues.
16. This has also been the dominant theoretical approach among economists studying nonagricultural business
17. See, for instance, Chavas and Holt (1990), Pope and Just (1991), and Young and Burke (2001).
18. See Allen and Lueck (1995, 1999b) and Prendergast (1999, 2002) on this literature, and Masten and Saussier
(2000) for a comparison of the empirical results for agency models with risk aversion compared to transaction cost
models. Masten and Saussier (2000) conclude that transaction cost models have been “far more successful both
at generating testable hypotheses and in explaining actual contracting practices” (215).
19. Most empirical contract studies outside of agriculture (Crocker and Masten 1988, Joskow 1987) have focused
on incentives such as enforcement costs, moral hazard, and specific assets. Other empirical studies have focused on
risk sharing (Garen 1994; Kawasaki and McMillan 1987; Lang and Gordon 1995; and Gaynor and Gertler 1995).
For a survey, see Shelanski and Klein (1995). A few studies in this literature have examined U.S. farm contracts
(Allen and Lueck 1992a, 1993a,b; Alston and Higgs 1982; Alston, Datta, and Nugent 1984).
20. See Grossman and Hart (1983), Harris and Raviv (1979), Holmstr om (1979, 1982), Ross (1973), Hart and
Holmstr om (1987), Sappington (1991), Shavell (1979), and Stiglitz (1974) for classic analyses using the risk-
sharing/incentive trade-off. The multitask literature is usually developed in a similar framework, even though