Contracts, Transaction Costs and Agricultural Production in the Pampas

Abstract

This paper presents an analysis of agricultural contracts using a transaction costs approach. We contend that in a context of modern agriculture, with well defined property rights, agricultural contracts must balance costs and benefits, aligning tenant and landlord incentives towards a similar objective. The study debates the potential effects of tenancy status and duration of contracts, over soil conservation and input use. We present empirical evidence about the effects over the soil and input use in tenant (fixed rent or sharecropping) and owner-operator farms using farm level data from the 2002 National Agricultural Census of Argentina. The empirical results show some differential effects but do not support a general and clear negative effect for tenancy arrangements. Our intuition is that the interaction among specific characteristics of farmers (education, experience, assets, etc.), the natural resources endowment (soil fertility) and the economic and institutional environment (labor markets, monitoring costs, property rights, rule of law etc.) are more important factors than the land tenancy or contract type itself.