Agriculture Reference
In-Depth Information
areas, such as parts of Italy and France” (310-311). Many other recent studies also confirm
this generalization, including Carmona and Simpson (1999) and Galassi (1992).
Although there are no detailed historical statistics on the precise distribution of these
lease arrangements, the general facts appear consistent with our model. In northern Europe
the most common type of farming would have been for small grains and grass crops. In
southern France, Italy, and Spain grapes, olives, and fruit were much more important.
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As
we mentioned earlier in the context of fruit trees in British Columbia, the share contract
mitigates the farmer exploiting the tree or vine asset. With grapes and fruit, pruning can
be done in certain ways that increase the short-run volume of fruit, but that over time kill
the tree or drastically reduce the long-term productivity of the tree. Sharing lowers the
incentive of the farmer to do this in the same manner it lowers the incentive to exploit soil
attributes.
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The observations about European land leasing, first made by Adam Smith and
John Stuart Mill, thus suggest that land contracts were chosen in response to the costs of
enforcing contracts over assets with many attributes. The dominance of cash rent contracts
in England and northern Europe was the result of the relative dominance of small grain and
grass farming. Similarly, the dominance of cropsharing in France, Italy and Spain was the
result of the relative dominance of orchard crops.
4.5
Summary
In this chapter we have shown the transaction cost approach to be a useful tool for un-
derstanding the choice of contracts for farmers and landowners in modern and historical
agriculture. It is an unfortunate reality that transaction cost models often hinge on unob-
servable parameters. If economists could directly and cheaply measure the ability of farmers
to exploit soil moisture and nutrients or the number and quality of hay bales taken, then so
could landowners and farmers and there would be no contract incentive issues. Despite the
problems with identifying output division costs and the cost of exploiting soil attributes
faced by the farmer, we feel that our variables are reasonable and accurate. The ability to
obtain detailed knowledge of farming practices helps exploit the theoretical model, and our
evidence indicates that the choice of cash rent and cropshare contracts lies primarily in their
ability to create proper incentives.
As we note in chapter 1, government programs might influence contract choice. For
example, farm commodity programs are another factor that could potentially influence
farmland contracts. For some crops (for example, barley and wheat) farmers get direct
payments; for some crops (for example, soybeans and sugar beets) farmers do not receive
direct payments but receive indirect subsidies through tariffs; and for other crops (for
example, cattle, hay) there are no programs. It is not clear what a model based on government
