Transaction Costs and the Design of Cropshare Contracts

Abstract

Modern cropshare contracts are explained using a model in which agents are risk neutral and contract rules are chosen to maximize expected joint wealth. It is shown that the farmer either bears the entire cost of inputs or shares the costs with the landowner in the same proportion as the output. The incentives of altering the cropshare percentage are examined and are used to derive implications about the portion of the crop that will be owned by the farmer. The model is tested and supported using data from a 1986 survey offarmers and landowners in Nebraska and South Dakota.