Implications of agency theory for optimal land tenure contracts

Comprehensive explanations of common empirical results (stylized facts) have eluded theoretical studies of land tenancy. In this article, we have applied modern agency theory to explain land tenancy contracts in developing and developed countries. We do not assume that effort can be monitored or that contracts are enforceable by courts. Thus, we relax assumptions prevalent in the agricultural contracting literature that are inconsistent with observed practices whereby most land tenancy contracts are informal and oral. We have shown how heterogeneity of characteristics among principals (riskiness of landowners' land and landowner risk aversion) and agents (tenants' productivities, risk premiums, and reservation utilities) can affect optimal tenancy contracts. © 2004 by Wallace E. Huffman and Richard E. Just.