Agriculture Reference
In-Depth Information
Table 3.1
Definition of variables
Dependent variables
ANNUAL
=
1 if annual contract;=0ifmultiyear contract.
ORAL
=
1 if oral contract;=0ifwritten contract.
Independent variables
ACRES
=
number of acres covered by contract.
AGE
=
farmer's age in years (for British Columbia and Louisiana).
AGE
=
1 if farmer is younger than 25,
=
2 if 25-34 years old,
=
3 if 35-44 years old,
=
4 if 45-54 years old,
=
5 if 55-64 years old,
=
6 if older than 65 (for Nebraska and South Dakota).
CHANGED PARTIES
=
1 if parties have changed in past five years;
=
0 if they have not changed.
FAMILY
=
1 if landowner and farmer were related; = 0 otherwise.
INFORMATION
=
1 if parties knew each other prior to lease; = 0 otherwise.
IRRIGATED
=
1 if land is irrigated;=0ifdryland.
TREES
=
1 if fruit was grown (e.g., apples, pears, etc.); = 0 otherwise.
VALUE
=
average per-acre value of farmland in county of lease.
YEARS DURATION
=
number of years contract has been in place.
term. We use a logit model to generate maximum likelihood estimates of the model given
by equations (3.1) and (3.2) for various contract samples.
Oral or Written?
The choice between oral and written contracts can be used to test predictions 3.1a and 3.1b
and thus estimate the importance of specific assets and market enforcement in determining
contract complexity. The primary benefit of using an oral contract is its simplicity. If a
dispute arises, however, an oral agreement will be difficult for a third party to enforce. When
market forces rather than a third party are the primary means of contract enforcement, an
oral contract is more likely. There may be some circumstances, however, when disputes are
more likely to occur, and in these cases a written contract is more likely. For example, if
the farmer and the landowner wish to make a customized contract, it tends to be written.
17
It is important to note that the Statute of Frauds—a common law contract rule—
requires that contracts that cannot be performed in one year must be written to be legally
enforceable.
18
For farmland contracts, the Statute of Frauds implies that all multiyear con-
tracts must be written contracts in order for them to be enforced in a court. If the court were
a routine mechanism of enforcement, we would expect all multiyear contracts to be written.
Yet, our Nebraska-South Dakota data show that only 53 percent of multiyear contracts are
