Agricultural Economics Department
Title
Book Review: The Nature of the Farm—Contracts, Risk, and Organization in Agriculture by Allen, Douglas W. and Dean Lueck
Document Type
Article
Date of this Version
January 2007
Abstract
The conventional wisdom about the future of family farming in North America is that it is
a bleak one. Like any other family firms, family farms are not immune to industrialization
and eventually all stages of food production will be in the hands of large corporations.
The poultry industry has become the poster-industry for the corporate take-over of food
production and the guide to what is in store for the rest of agriculture. That, among other
theories about organizational features of North American agriculture, is closely examined
by Allen and Lueck’s Nature of the Farm—Contracts, Risk, and Organization in Agriculture.
As the reader can guess, the leading title of the book is a take on Ronald Coase’s classical
article, The Nature of the Firm, obviating the book’s use of the transaction cost approach to
explain contracts, risk, and organization in agriculture.
In contrast to the “principal-agent” approach, where risk sharing between risk-averse
contracting parties is the motive for contracts, the transaction cost approach Allen and
Lueck use bypasses risk preferences by justifiably assuming risk neutrality and focuses
instead on the tradeoff between incentives offered by contracts. In doing so, the authors
develop models that are more consistent with actual farming practices in North
America and with the data than risk-sharing models. Chapter 2 provides a thorough
discussion of those farming practices. Chapters 6 and 7 in part II of the book provide
the empirical evidence against the risk-sharing explanation of contracts using data on
individual contracts.
Download
Comments
Published in Agribusiness 23:2 (2007), pp. 293–294; DOI: 10.1002/agr.20124. Copyright © 2007 Wiley Periodicals, Inc. Used by permission. Published online in Wiley InterScience: http://www.interscience.wiley.com