Sustainable land use: landlord–tenant contracting in the United States of America

Abstract

This paper provides new perspectives on US landlordtenant contracting, where technical change is creating scale economies in farming and farm enlargements, and results that are important to the sustainability of land use and environmental quality. We develop a conceptual model of landlordtenant contracting that emphasizes minimizing transactions costs and setting incentives for effort when tenants are risk averse, and provide empirical evidence from the USA supporting the model. We find support for both models and that landlords’ as well as tenants’ attributes determine whether a contract is crop share or cash. We also find that highly erodible land and land that is expected to remain in farming in the future are most likely to be operated with share contracts, which include owners’ interests in production and management decisions. We then examine evidence showing how contract choice affects the adoption of short- versus long-term conservation practices, participation in public conservation programmes, and tendencies for conversion of farmland to urban uses. We conclude that, under diverse economic, technical, climatic, ecological and political conditions, crop-share contracts have sustainability advantages relative to cash rental contracts.