A Transaction Cost Primer on Farm Organization

Agricultural economists, with their knowledge of farming, are well positioned to take advantage of the fertile ground of economic organization. The transaction cost paradigm is particularly useful in addressing such questions and is outlined in this paper. The overriding theme in the transaction cost approach is that patterns of ownership and contracts are chosen to mitigate transaction costs, which result from attempts to establish and maintain property rights. In agriculture, transaction costs are heavily influenced by Mother Nature. Nature's uncertainty, via weather and pests, leads to moral hazard and seasonal forces impose constraints on production cycles that are not often found in the production of most other commodities. Applications in land contracts, asset control, and business organization are discussed.     

Presentation Matters: Comparison of Cognitive Effects of DTC Prescription Drug Advergames,Websites, and Print Ads

Applying limited cognitive capacity theory, this study examined the cognitive effects of direct-to-consumer (DTC) advergames in comparison to those of print ads and websites. The results revealed consumers’ memories of the advertised drug brand and information about the drug and the disease it treats was the lowest in the advergame condition and highest in print. For the content elements that were centrally integrated into the advergame, however, consumer recall was the highest in the advergame condition. In addition, differential memory decay was found across media types. Memory decay was greater in the print ad condition than the other media conditions.     

A Hotelling–Faustmann Explanation of the Structure of Christmas Tree Prices

We examine the relationship between a tree price and a tree age (height) using a Hotelling–Faustmann type model of optimal plantation management, which accounts for the possibility of replanting and biological growth. The model predictions are tested using the data on Christmas tree prices in North Carolina collected in December 1997. The estimates show that, in general, the rates of change in prices between adjacent age cohorts reflect a competitive equilibrium in the capital market thus supporting the Hotelling–Faustmann paradigm.     

The role of risk in contract choice

Structuring contracts to share risk in light of incentive problemsis the central premise of contract theory, yet the risk-sharingimplications have rarely been thoroughly tested using micro-levelcontract data. In this article we test the major implicationsof a principal-agent model of contracts using detailed dataon more than 4000 individual contracts from modern North Americanagriculture. On a case-by-case basis, our evidence fails tosupport the standard principal-agent model with risk aversionas an explanation of contract choice in modern North Americanfarming. At the same time, we find some support for models thatassume risk-neutral contracting parties and stress multiplemargins for moral hazard and enforcement costs.     

Customs and Incentives in Contracts

This article examines contractual practices that are often assumed customary. In particular it examines discreteness in agricultural contracts, and focuses on the distinction between the use of simple discrete fraction terms in cropshare contracts and the nearly continuous payment terms used in cash rent contracts. We show that the pattern of shares is best explained as a response to moral hazard problems spread over large numbers of inputs. A contracting model explains the pattern of shares, the difference in flexibility with cash rent contracts, and the lower bound on shares. Empirical analysis using micro data on over 3,000 contracts are used to test implications of the model. A wide range of support is found for a model based on moral hazard and measurement costs.     

<Emphasis Type="Bold">The Nature of the Farm: Contracts,Risk, and Organization in Agriculture</Emphasis>

Book Review

The Nature of the Farm: Contracts, Risk, and Organization in Agriculture     

Market and regulatory forces in the pricing of legal services

New data on individual law firms and attorneys is used to examine the effects of professional licensing restrictions and market forces on prices of legal services. The data allow detailed testing of the hypothesis that licensing restrictions serve to increase the price of professional services as well as the incomes of those providing these services. In general, little support is found for this hypothesis. Instead, the estimates show that market forces are most important in explaining variations in prices and attorney incomes.Dean Lueck is on leave from Louisiana State University. We thank William Boiger, Executive Director of the National Resource Center for Consumers of Legal Services, for providing data on law firms. Andrew Dick, Philip Hersch, Andy Kleit, Bill Kovacic, Fred McChesney, Jeff Moore, and two anonymous referees provided helpful comments on earlier versions. Chris Diener, Jim Larkins, Robert Pace, and Darrin Timothy provided research assistance.