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Competition and Custom in Economic Contracts: A Case Study of Illinois Agriculture
H. Peyton Young and Mary A. Burke
The American Economic Review
Vol. 91, No. 3 (Jun., 2001), pp. 559-573
Published by: American Economic Association
Stable URL: http://www.jstor.org/stable/2677879
Page Count: 15
You can always find the topics here!Topics: Soil quality, Tenants, Farm economics, Agricultural soils, Farms, Crops, Landlords, Contracts, Crop economics, Agricultural land
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Survey data suggest that cropsharing contracts exhibit a much higher degree of uniformity than is warranted by economic fundamentals. We propose a dynamic model of contract choice to explain this phenomenon. Landowners and tenants recontract periodically, taking into account expected returns as well as conformity with local practice. The resulting stochastic dynamical system is studied using techniques from statistical mechanics. The most likely states consist of patches where contractual terms are nearly uniform, separated by boundaries where the terms shift abruptly. These and other predictions of the model are borne out by survey data on agricultural contracts in Illinois.
The American Economic Review © 2001 American Economic Association