Contract duration and the division of labor in agricultural land leases

Abstract

Short-term contracts provide weak incentives for durable input investment if post-contract asset transfer is difficult. Our model shows that when both agents provide inputs, optimal contract length balances the weak incentives of one agent against the other's. This perspective broadens the existing contract duration literature, which emphasizes the tradeoff between risk sharing and contracting costs. We develop hypotheses and test them based on private grazing contracts from the Southern Great Plains. We find broad support for the implications of our model. For example, landowners provide durable land-specific inputs more often under annual than multi-year contracts.

The role of contract type in soil-improving investments: evidence from rice-planting large-scale production units in China

“…In case of insecure tenure where the tenancy arrangement for a particular plot is oral, the rights and obligations of the contracting parties are less clear; hold-up problems may arise due to the threat of opportunistic expropriation by leaseholders (Abdulai and Goetz, 2014). Consequently, without formal contracts established, short-run production gains and soil harvesting may be preferred over long-term investments in soil conservation, resulting in unsustainable practices; on the contrary, with written contracts, LSPUs are able to overcome the hold-up problems by adjusting investments to the point where they fully recover the returns, grounded on the conditions (e.g., contract duration) prescribed beforehand (Jacoby and Mansuri, 2008; Yoder et al ., 2008).…”

Determining terminal concession durations in seaports: theoretical considerations, applicable techniques and current practices

“…Additionally, longer contracts are given for assets requiring more investments. Yoder et al (2008) hypothesize that landlords are more likely to take care of investments in case of output-sharing contracts, for shorter contracts and for input investments with a longer economic life. Tenants, on the other hand, tend to invest in inputs with a shorter economic life, for non-output-sharing leases with cash-rent payments and when given longer contract durations.…”

Market Interlinked, System Non-specialized: Farmland Transfer Impacts on Rural Labor Mobility

“…The literature on market interlinking toward the perspective of factor contract is the other branch [9,10,11], especially for the interlinked contracts [12]. Originally, [13] explores the nature of interlinked contract under adverse selection and finds interlinkage of contracts reduces investment and is second-best but the non interlinked contracts is first-best.…”