Risk-Sharing and Agricultural Contracts

Posted: 13 Nov 1996

See all articles by Dean Lueck

Dean Lueck

Indiana University Bloomington - The Vincent and Elinor Ostrom Workshop in Political Theory & Policy Analysis; Indiana University

Douglas W. Allen

Simon Fraser University

Date Written: March 1996

Abstract

Structuring contracts to share risk in light of incentive problems is the central premise of contract theory, yet the risk-sharing implications have rarely been thoroughly tested using micro-level contract data. In this paper we test the major implications of a principal-agent model of contracts using detailed data on over 4,000 individual contracts from modern North American agriculture. In conducting this investigation we stress the importance of assumptions about risk preferences in generating testable implications. On a case-by-case basis, our evidence fails to support risk-sharing as an explanation of contract choice in modern North American farming. At the same time, we find support for models that assume risk-neutral contracting parties and stress multiple margins for moral hazard and enforcement costs.

JEL Classification: D23, L14, Q12

Suggested Citation

Lueck, Dean and Allen, Douglas W., Risk-Sharing and Agricultural Contracts (March 1996). Available at SSRN: https://ssrn.com/abstract=4424

Dean Lueck (Contact Author)

Indiana University Bloomington - The Vincent and Elinor Ostrom Workshop in Political Theory & Policy Analysis ( email )

513 N. Park Avenue
Bloomington, IN 47408–3895
United States

HOME PAGE: http://https://ostromworkshop.indiana.edu/people/directors/lueck-dean.html

Indiana University ( email )

107 S Indiana Ave
100 South Woodlawn
Bloomington, IN 47405
United States

HOME PAGE: http://https://economics.indiana.edu/home/people/lueck/

Douglas W. Allen

Simon Fraser University ( email )

8888 University Drive
Burnaby, British Columbia V5A 1S6
Canada
604-291-3445 (Phone)
604-291-5944 (Fax)

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