Agriculture Reference
In-Depth Information
ability of the farmer to overuse the land is limited in these cases, and hay crops are easier
to underreport at harvest. With row crops, where the ability to exploit the soil is greater and
where the relative cost of division is lower, adjustment clauses are more likely.
We test our predictions by using the sample of cash rent contracts from the Nebraska-
South Dakota data using the empirical specification in equations (4.5) and (4.6). Table
4.5 presents the results of a logit regression equation that estimates the effects of several
variables on the decision to include an adjustment clause in the cash rent contract. Our
model predicts that all variables should have the same sign as in the previous test since
the presence of an adjustment clause with a cash rent contract approximates a cropshare
contract. Except for DENSITY, all estimated coefficients support our predictions. For the
variables HAY and IRRIGATED we expect—and find—a negative relationship, although
the coefficient for IRRIGATED is not statistically significant. The variable ROW CROP is
positive and significant, as predicted, since the adjustment clause will discourage exploiting
the soil to increase the current crop. DENSITY is predicted negative because alternative uses
for the land reduce the cost of soil exploitation; however, this prediction is refuted by the
data.
Like the estimates in table 4.3, we include ACRES, FAMILY, and ROW*HAY as control
variables. ACRES and ROW*HAY have no statistically significant effect on the presence
of an adjustment clause. FAMILY, however, has a positive and statistically significant effect
on the probability that an adjustment clause will be chosen. This indicates that family
members are more likely to exploit the soil under a pure cash rent contract than are nonfamily
members. This finding is consistent with the majority of our estimates in tables 4.3 and 4.4
and supports the prediction that family members are more likely to use share contracts.
We also estimated this equation with the farmer sample to test our prediction about
institutional landlords. The estimates for this equation are also shown in table 4.5. The
coefficient for INSTITUTION was negative as predicted, and significant at the 10 percent
level. The other coefficients were similar in size and statistical significance levels to the full
sample coefficients.
4.4
Farmland Contracts in Historical Europe
Adam Smith was not a fan of cropsharing. His major discussion of the topic appears in
chapter II of topic III of
The Wealth of Nations
, under the general heading of “Discour-
agement of Agriculture.” There Smith provides a brief history of agricultural contractual
arrangements, beginning with the Roman Empire and continuing to his day. A major theme
for Smith was that historical agriculture often involved slavery, and given the disincentives
of slaves to work, innovate, and look after farm capital, these types of farms were eventually
