Competition and custom in economic contracts: A case study of Illinois agriculture

Survey data suggest that cropsharing contracts exhibit a much higher degree of uniformity than is warranted by economic fundamentals. We propose a dyn amic model of contract choice to explain this phenomenon. Landowners and te nants recontract periodically, taking into account expected returns as well as conformity with local practice. The resulting stochastic dynamical syst em is studied using techniques from statistical mechanics. The most likely states consist of patches where contractual terms are nearly uniform, separ ated by boundaries where the terms shift abruptly. These and other predicti ons of the model are borne out by survey data on agricultural contracts in Illinois.