Agriculture Reference
In-Depth Information
WHEAT are not row crops, and we expect their coefficients to be positive. All of these crop
coefficients have the predicted sign, and all are statistically significant but CORN.
We also include two control variables in the last two equations. YEARS DURATION
measures the number of years of continuous contracting and ACRES measures the size
of the contracted plot of land. In both equations the estimated coefficient on ACRES is
not significantly different from zero, indicating that the size of the contracted land parcel
does not influence the terms of the cropshare rule. The estimated coefficient for YEARS
DURATION is positive and statistically significant, indicating that the farmer's share will be
higher the greater the duration of the relationship. While we include YEARS DURATION
as a control, this variable has a plausible economic interpretation. If the number of years
of past contracting can be taken as a proxy for a farmer's reputation for good husbandry,
then as the number of years increases the farmer is expected to act more as if he were
an integrated landowner-farmer. 17 As a result, soil exploitation is reduced compared to a
situation in which the landowner contracts with a farmer for the first time (
r is closer to
for long-term contractors), and there is less need for the farmer's share of the crop to be low
to mitigate that problem. In turn, a higher share of the crop to the farmer assures a more
ideal use of the farmer's inputs.
Custom versus Incentives
Our analysis of cropshare contracts would not be complete without mentioning a curious
feature of these data—cropshares take on relatively few discrete values. Table 5.3 shows
that 50-50, 60-40, and 67-33 are by far the most common divisions. Less common are
25-75, 33-67, 40-60, and 75-25. Completely absent are such divisions as 58.5-41.5 or 62-
38. 18 Recently, Young and Burke (2001) attempt to explain the extent to which custom
determines this feature of share contracts. They use recent data from Illinois and an argument
based on custom to claim that these contracts are rigid around a few focal shares. Focalness
and frequency of use are valuable, according to them, because they reduce the costs of
bargaining. Over time, contracts within a given region become homogeneous and focused
on a few discrete shares, while large differences in land quality lead to variations in focal
shares across different regions.
The notion that share contracts are focal around 50-50, as we have mentioned in chapter
2, is commonly held by economists. Unfortunately, it often stems from examining specific
crops in isolation. For example, Young and Burke (2001) examine farmland contracts in
Illinois, where two crops—corn and soybeans—account for 92 percent of the harvested
cropland acreage in the state. Since these contracts tend to share output 50-50, their sheer
dominance in that region lends the appearance of focalness. Had Young and Burke examined
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