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American Economic Review: Vol. 91 No. 3 (June 2001)

AER Volume. 91, Issue 3 | Previous ArticleNext Article

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Competition and Custom in Economic Contracts: A Case Study of Illinois Agriculture

Article Citation

Young, H. Peyton, and Mary A. Burke. 2001. "Competition and Custom in Economic Contracts: A Case Study of Illinois Agriculture." American Economic Review, 91(3): 559-573.

DOI: 10.1257/aer.91.3.559

Abstract

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.

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Authors

Young, H. Peyton (Johns Hopkins U)
Burke, Mary A. (FL State U)

JEL Classifications

Q15: Land Ownership and Tenure; Land Reform; Land Use; Irrigation
Z13: Economic Sociology; Economic Anthropology
J43: Agricultural Labor Markets
L14: Transactional Relationships; Contracts and Reputation; Networks