Notes - The Nature of the Farm - page 227

7. Nearly all farms are vertically integrated to a certain degree. Most farmers own some land and buildings. The
potentially capturable quasi-rents would be huge for a farmstead located on another's land.
8. Interestingly, Klein, Crawford, and Alchian (1978) briefly discussed orchards near the end of their classic paper.
9. In fact, the mean duration of the contract relationship in our Nebraska-South Dakota data is 11.5 years. In their
Illinois data, Sotomayer Ellinger, and Barry (2000) find a mean duration of 14.4 years. Similarly, in their Kansas
data, Tsoodle and Wilson (2000) find a mean duration of 16 years.
10. Learning over time could create dynamic incentive problems and lead to “ratchet effects,” which are examined
in chapter 7.
11. It may appear that a farmer caught cheating will suffer only in terms of price—higher cash rents or lower
shares—but this is not the case. Abusing the land is suboptimal and so a poor farmer will never be able to pay
enough to compensate for the damage done. Hence, just as shirking workers are fired and do not have their wages
lowered, cheating farmers are also “fired.”
12. Hamilton (1990) agrees: “The general view in U.S. common law is that an implied covenant of good husbandry
does exist in the lease of farmland” (234). Hamilton (1990, 1993) and Harl (1998) discuss the details of the good
husbandry covenant.
13. 255 Iowa 30, 120 N.W. 2d 451 (Supreme Court of Iowa, 1963).
14. Once again, orchard regions may be unique because of the great variability in elevation, aspect (slope direction),
and soil quality in a relatively small region.
15. See Harl (1998), and Meyer et al. (1985) for detailed reports on the common law related to farm leases. In
addition to disputes over farming operations, disputes have arisen over termination notice, government payments,
taxes, subletting, and building maintenance. In the early 1990s, J. David Aiken, agricultural law specialist at
the University of Nebraska, informed us that the last farmland lease case in Nebraska was in 1987 and involved
termination notice, not husbandry. Aiken was aware of only one other Nebraska case in the 1980s; it too was a
dispute over notice of termination. In private correspondence, Theodore A. Fietshans, agricultural law specialist
at North Carolina State University, also notes that leasing disputes are seldom litigated (January 3, 2002).
16. Note that AGE is measured differently in our data. In the Nebraska-South Dakota data the AGE variable is
categorical, but in the British Columbia-Louisiana data AGE is in actual years.
17. In Nebraska and South Dakota, for instance, if the beginning and ending dates of the lease are not mentioned,
they are typically set by default at December 1 to December 1.
18. The Statute of Frauds was first codified in England in 1677 and is now found in the Uniform Commercial
Code and in state statutes. See Neb Rev Stat §§111.205 and 111.210 and SD Comp Laws Ann §43-32-5. Although
the original English law referred only to leases lasting more than three years, most U.S. states require writing for
leases lasting more than one year. See Harl (1998) for a discussion of the Statute of Frauds in farm leasing.
19. The practice of resolving disputes in the shadow of the law is discussed in great length by Ellickson (1991).
There he analyzes how farmers and ranchers resolve tresspassing disputes in Shasta County, California. He found
that individuals often resolved their disputes without the least attention to the law. Some legal writers criticize
farmers for not putting contracts in writing more often and tend to attribute this to “tradition” rather than an
alternative enforcement regime. Harl (1998), however, notes that oral leases are common and that the Statute of
Frauds is routinely ignored. Harl also notes that some jurisdictions treat oral contracts as legitimate “tenancy at
will” leases meaning that no definite time period is required.
20. We do not have data on the age of the landowner, nor do we have any reason to think they would correlate
strongly.
21. Sotomayer Ellinger, and Barry (2000, 22) also find that oral contracts are more likely for (a) older farmers,
(b) larger plots of land, and (c) among family members. They did not have data to estimate the effect of specific
assets.
22. In their detailed analysis of viticulture in eighteenth and nineteenth century Catalonia, Carmona and Simpson
(1999) find that share contracts were long term, reflecting the long-lived vine crops. The contracts were also
automatically renewed as long as the farmer replanted vines appropriately. In fact, the contracts were called rabassa
morta , which means “dead root.” The contracts would only be terminated when more than two-thirds of the vines
were dead or had not been replanted.