The Nature of the Farm

The Nature of the Farm is a theoretical and empirical
study of contracts and organization in agriculture based on the transaction cost
framework. Transaction costs are important in agriculture because nature (for
example, seasonality, weather, pests) plays such a critical role in determining
output and limiting the ability of farmers to specialize. The book develops specific
models and tests the implications of those models against data sets from across
North American agriculture, as well as against historical case studies such as
eighteenth-century European land contracts and the late nineteenth-century Bonanza
farms in the United States.

The book is organized in three parts.
Part I examines the classic question of what determines the optimal choice between
fixed rent and cropshare arrangements, concluding that it is determined by a
trade-off between incentives to overuse rented land and incentives to underreport
shared output. Part II tests several predictions derived from a standard
risk-sharing model of contracts and finds little evidence that risk sharing is
important in contract choice. Part III extends the transaction costs analysis to
broader organizational issues. It introduces seasonality and timeliness costs as
forces influencing the gains from specialization and the costs of contracting, and
finds that farm ownership and farm organization are routinely shaped by these
forces.