risk aversion is not required to explain contract choice in the presence of multiple tasks (Allen and Lueck 1998;
21. Recent studies, including Allen and Lueck (1992b, 1993a), Crocker and Masten (1988), Eswaran and Kotwal
(1985), Joskow (1987), Lazear (1986), and Leffler and Rucker (1991), have examined contracts without resorting
to risk-averse preferences. Shelanski and Klein (1995) summarize this large and growing literature.
22. In the franchising literature, for example, key predictions have turned on unverifiable claims about whether
franchisors or franchisees are more risk averse (Lafontaine 1992).
23. The details of these empirical difficulties are examined in chapter 6.
24. For our understanding of agricultural policy in the United States and Canada, we rely on Gardner (1981),
Knutson, Penn, and Flinchbaugh (1998), Pasour (1990), Orden, Paarlberg, and Roe (1999), Rausser (1992), and
Schmitz, Furtan, and Baylis (2002).
25. An overriding rhetorical goal of farm policy has been to provide farmers with “parity” prices for their
agricultural products approaching the level (in real terms) of 1910-1914, which tended to be near all-time highs.
26. This is a bit of a simplification because the government “loan rate” acts as a price floor, so payments are actually
the difference between the target price and the higher of the loan rate and the market price.
27. Marketing orders avoid antitrust liability under the Capper-Volstad Act of 1922 and the Agricultural Marketing
Adjustment Act of 1937.
28. See Orden, Paarlberg, and Roe (1999) or Schmitz, Furtan, and Baylis (2002) for a discussion of the 1996
29. For example, there are and have been programs for honey, peanuts, tobacco, and wool.
30. See Schmitz Furtan, and Baylis (2002) for a discussion.
31. Barley and oats have been included during some years.
32. Available online at http://www.usda.gov/agency/obpa/Budget-Summary/2002/2002budsum.htm (accessed on
November 5, 2001).
33. Schmitz Furtan, and Baylis (2002, Table 8.6) show that farm payments as a share of net farm income are
substantially lower for farmers in the provinces of Alberta, Manitoba, Ontario, and Saskatchewan than for the
farmers in the neighboring states of Minnesota, Montana, and North Dakota.
34. It is worth noting here, however, that farmland contracts routinely mention and assign ownership of the
government payment (see the sample contract in figure 3.1), thus affecting the rental rates of these leases.
35. Overall, however, our sentiments are similar to Hansmann (1996), when he states: “To be sure taxes, subsidies,
regulation and organizational law all differ from one society to another in various ways for various industries, and
these clearly have importance for the patterns of ownership that we observe. But they are generally not so strong
as to swamp the basic costs of market contracting and of ownership” (295).
36. For example, the works of Brewster (1950), Ellickson and Brewster (1947), Holmes (1928), (1929), and
Johnson (1944) all consider questions that are discussed in this topic.
37. See, for example, Johnson (1950), Schickele (1941), or Taylor (1910).
38. Even this may be changing. Hennessy and Lawrence (1999) have recently called for more emphasis on “the
economics of transaction costs and contractual relationships” (65) in the agricultural literature.
39. The classic summary of this development literature is found in Otsuka and Hayami (1988).
40. Important works in economic history include Ackerberg and Botticini (2000), Alston and Higgs (1982),
Carmona and Simpson (1999), Luporini and Parigi (1996), and Pudney, Galassi and Mealli (1998).
Chapter 2: Farming in North America
1. This is similar to definitions found in the agricultural literature. For example, Scolville (1947) defines the farmer
as one who “makes most of the managerial decisions, participates regularly in farm work, and on which his role