Agricultural Economics Department

 

Date of this Version

January 2007

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

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.