Replaced with revised version of poster 07/22/10.Agricultural and Food Policy, Industrial Organization, Land Economics/Use,

Gervais, Jean-Philippe

Goodwin, Barry K.

Qiu, Feng

English

Research Papers in Economics

An Empirical Investigation of the Linkages between Government 
Payments and Leasing Arrangements  
 
 
 
 
 
 
Feng Qiu 
Barry K. Goodwin 
Jean-Philippe Gervais 
 
Department of Agricultural and Resource Economics 
North Carolina State University 
 
fqiu@ncsu.edu 
barry_goodwin@ncsu.edu 
jp_gervais@ncsu.edu 
 
 
 
 
 
Poster prepared for presentation at the Agricultural & Applied Economics Association 
2010 AAEA, CAES, & WAEA Joint Annual Meeting, Denver, Colorado, July 25-27, 2010 
 
 
 
 
 
 
 
 
 
Copyright 2010 by [Feng Qiu, Barry K. Goodwin, and Jean-Philippe Gervais]. All rights reserved. 
Readers may make verbatim copies of this document for non-commercial purposes by any means, 
provided that this copyright notice appears on all such copies. printed by
www.postersession.com
BACKGROUND
METHODOLOGY
RESULTS Figures 4, 5, and 6: Historical county average commodity-related payments ($/acre) by programs: 1993-2007
Figures 1, 2, and 3: Percentage of types of leases in the US andHeartland: 1988 vs. 1999
Figure 7: Distribution of commodity-related payments and conservation payments by regions: 2005
Figures 8 and 9: Farmland rented from others as a percentage of total land operated by contracts: 2002-2007
ABSTRACT
CONCEPTURAL FRAMEWORK AND DATA
q First, the study shows that potential biases may arise when restricting the set of leasing 
arrangements to only cash contracts and sharecropping. 
q Second, the analysis suggests that governmental and legal restrictions on benefit sharing 
between contracting parties are ineffective. The increasing use of hybrid contracts likely 
reflects a redistribution of program benefits between contracting parties. 
q Third, most existing empirical research focuses on the cash rental contracts. However, 
Tenant farmers under share and hybrid contracts typically rentedmore than 70% of their 
operated land from others. The percentage is higher than under cash contracts (Figures 8 
and 9). Future studies may find it helpful to consider different types of contracts when 
studying the incidence of agricultural subsidies. 
Source: Authors’compilation from USDA/AELOS 1988 and 1999 (Figures 1, 2, and 3), unpublished county level program payments from the USDA over the 1993-
2007 period (Figures 4, 5, and 6), USDA/ERS 2005, and USDA/ARMS 2002-2007 (Figures 8 and 9).
under Share and/or Hybrid contracts under Share and/or Hybrid contracts
(County Average): 2002 (County Average): 2002- -2007 2007 IMPLICATIONS
29.8
43.4
61.3
49.7
42.7
35.8
51.2
27.7
31.9
28.1
24.0
30.5
44.4
21.4
40.1
20.9
38.2
29.9
16.5
27.4
0.0
10.0
20.0
30.0
40.0
50.0
60.0
70.0
United States
Iowa
Illinois
Indiana
Missouri
Ohio
Kansas
Nebraska
North Dakota
South Dakota
Area 
P
e
r
c
e
n
t
a
g
e
1988 Share Contract Percentage 1999 Share Contract Percentage
3.2
4.9
3.6
2.1
4.8
0.6
5.1
3.3
0.6
5.6
10.8
12.4
26.9
26.0
8.9
14.4
15.9
13.7
11.0
15.1
0.0
5.0
10.0
15.0
20.0
25.0
30.0
United States
Iowa
Illinois
Indiana
Missouri
Ohio
Kansas
Nebraska
North Dakota
South Dakota
Area 
P
e
r
c
e
n
t
a
g
e
1988 Hybrid Contract Percentage 1999 Hybrid Contract Percentage
65.3
50.7
33.7
47.1 48.6
61.9
42.8
68.5
64.3 65.7
59.4
56.7
27.3
50.7
48.3
59.6
44.3
51.7
69.7
55.4
0.0
10.0
20.0
30.0
40.0
50.0
60.0
70.0
80.0
United States
Iowa
Illinois
Indiana
Missouri
Ohio
Kansas
Nebraska
North Dakota
South Dakota
Area 
P
e
r
c
e
n
t
a
g
e
1988 Cash Contract Percentage 1999 Cash Contract Percentage
This study investigates the impacts of decoupled and coupled support payments on 
farmland rental contract choices using a principal-agent model. It considers cash and share 
contracts as well as hybrid contracts, which are increasingly used in US agriculture. The 
conceptual framework suggests that restrictions on sharing payments between contracting 
parties are ineffective and induce an offsetting contractual rearrangement. Empirical 
results from a multinomial logit model confirm that government support programs have 
significant effects on contract choices and effects vary by types of subsidies.
Overview of the current U.S. farmland leasing market
§ Farmland renting is a common practice in the US; about 45% of farmland is operated by tenants. 
§ Historically, contractual arrangements between landlords and tenants mostly included either cash 
payments or sharecropping. More recently, hybrid contracts have gained popularity.  USDA/NASS 
(2001) defines a hybrid contract as one under which the tenant pays part of the rent in cash and
part as a share of crops or livestock products.
§ Hybrid contracts capture a growing share of leasing arrangements( see Figures 1, 2, and 3).
Generous subsidies
§ Farm Bills and commodity-related program payments
§ Three main programs: loan deficiency payments (LDP), direct decoupled payments (DDP), and 
counter-cyclical payments (CCP) (see Figures 4, 5, 6, and 7)
§ Legislation requirements on benefit distributions
§ Regions with large program payments usually pay high rental rates and tend to use more hybrid 
contracts 
Benefit distribution between landlords and tenant operators
§ Existing studies (e.g., Goodwin, Mishra, and Ortalo-Magné, 2010; Patton, et al., 2008) find that 
landlords capture a share of program benefits through raising rental rates, given any specific types 
of contracts
§ However, benefit redistribution may also be realized by changing/switching contractual 
arrangements
The Questions
Do government subsidies impact the landlord-tenant farmland contract choices?  Is the 
increasing use of hybrid contracts a result from the compositionof farm programs and the 
related payments?
The purpose of this study is to quantify the effects of government program payments on leasing 
arrangements between landlords and tenants.
q We first propose a principle-agent framework to investigate the impacts of decoupled paymentson 
farmland rental contract choices.  The model is extended to include coupled subsidies. This setting 
generates an ambiguous relationship between government payments and leasing arrangements that can 
only be resolved empirically.  The conceptual analysis suggests that landlord-tenants adjust leasing 
arrangements to re-distribution government subsidies.  Governmental and legal restrictions on benefit 
sharing between contracting parties are ineffective and induce offsetting contractual rearrangements.  
The increasing use of hybrid contracts on crop farms may be a form of this contractual rearrangement. 
q Data used: the 1999 ARMS and the 1999 AELOS data; the 1988-1999 Regional Economic Information Systems 
(REIS) data; unpublished county level program payments from the USDA over the 1996-1999 period; county level 
farmland data from 1997 Census of Agricultural
Model specification
§ A generalized multinomial logit model with an alternative-specified constant has been used. The 
landlord-tenant pair chooses a contract among three alternatives: a cash contract, a share contract, 
or a hybrid contract, conditional on a set of independent variables which are specific to the 
landlord-tenant pair n.
Empirical strategy
§ Endogenous matching (Ackerberg 2002)
§ Clustered standard errors
§ IIA and tests for combining alternatives 
,|||,|,|,|,
,
1111
where  are subsides ($) received from government program ;   are proxies to capture farming ri / sk
G RPM
nibibgbngrbnrpbnpmbnm
ng
I III
GRPM
grpm
VGovPRiskEffPOther
GovPgRisk are
abbbb
====
=++++ ￿￿￿￿
 and 
risk preference;   represent the tenant productivity;  and  include other factors may have impacts on contract chices. EffPOther
Main results
§ All five programs have significant impacts on contract choices
§ Three commodity-related programs all have positive impacts on hybrid contract choice.
§ Decoupled payments encourage the use of hybrid contracts while decrease the probability of 
choosing share contracts, as the conceptual framework predicted
§ Impacts of coupled subsidies vary by types of programs. For example, The predicted probability of 
choosing a cash contract is 4.94% higher if disaster payments increase one unit. 
Table 1. Marginal/Discrete Changes on the Predicted Probabilities
Variable  Marginal/Discrete Changes in 
Predicted Probabilities (100%) 
Receipt of program payments in 1999    Cash  Hybrid  Share 
PFC/DDP  Direct decoupled payments  -+sd/2     2.61  1.12  -3.72 
MLA/CCP Market loss assistance payments  -+sd/2     -6.45  0.84  5.61 
LDP  Loan deficiency payments  -+sd/2     0.63  2.34  -2.98 
Disaster  Disaster payments  -+sd/2     4.94  -2.47  -2.47 
CRP  Conservation reserve program 
payments 
-+sd/2     0.17  -0.57  0.40 
Other  Other payments  -+sd/2     3.35  -0.78  -2.57 
Note: other factors, such as farming risk, degree of risk aversion, effort productivity are also included in the empirical 
model.  Please contact the authors for more detailed results. 
Direct correspondence to Feng Qiu at Box 8109, North Carolina State University, Raleigh, NC, 27695
E-mail: fqiu@ncsu.edu
An Empirical Investigation of Linkages between Government Paymen An Empirical Investigation of Linkages between Government Payments and Farmland Leasing Arrangements ts and Farmland Leasing Arrangements
Feng Qiu, Barry K. Goodwin, and Jean-Philippe Gervais
Department of Agricultural and Resource Economics, North Carolina State University

An Empirical Investigation of the Linkages Between Government Payments and Leasing Arrangements

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