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The Nature of the Farm
Contracts, Risk, and Organization in Agriculture

The Nature of the Farm
Contracts, Risk, and Organization in Agriculture
by Douglas W. Allen and Dean Lueck
The MIT Press, 2003

Compiling and elaborating on a decade's worth of published theories and analysis, economists Douglas Allen and Dean Lueck demonstrate how incentives shape the contractual agreements made between farmers and landowners in North America. Their research includes case studies of 18th century European land contracts and the detailed leases issued by the large Bonanza farms on the U.S. plains.

The authors examine the trade-offs between fixed rent and cropshare agreements and conclude that risk sharing has little influence on the choice of contract. Instead, they suggest that nature plays more than a casual role in farm production decision-making due to the constraints of seasonality and timeliness.

"Although the organization of industry has generally followed a transition from family farms to large factory-style corporations, farming remains a last bastion of family production," the authors point out. "Production stages in farming tend to be short and infrequent and require few distinct tasks, thus limiting the benefits of specialization and making wage labor especially costly to monitor. Only when farmers can control the effects of nature by mitigating the effects of seasonality and random shocks to output does farm organization gravitate toward factory processes, developing into the large-scale corporate farms found elsewhere in the economy."

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The Nature of the Farm

"The literature assumed that cropshare contracts had vanished from modern agriculture. Since we knew from our own experience that cropshare contracts were still widespread, we first set out to explain the existence and extent of these contracts in modern agriculture. We fondly recall when a senior professor of agricultural economics flat-out told us, 'There are no cropshare contracts in American agriculture anymore.'"

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