Self-enforcing contracts in agriculture

This article examines a self-enforcing contract between a risk-neutralprincipal and a risk-averse agent who is able to hold up valuesex post. It shows that risk aversion and variance can only partlyexplain the contract's incentive intensity. Ex post bargainingpower and outside options will also determine contract choice.If the agent's ex post bargaining position is weak, the principalcannot commit to high-powered incentives, whereas if the agent'sex post bargaining position is good, the agent cannot committo low-powered incentives. The model may thus explain some puzzlesin agricultural contracts, in particular why risk-averse agentssometimes accept to be governed by high-powered incentive contractsthat are quite similar to fixed rental contracts, and why risk-neutralagents are sometimes offered share contracts with lower-poweredincentives.