CROSS-COMMODITY PERSPECTIVE ON CONTRACTING: EVIDENCE FROM MISSISSIPPI

Cross-Commodity Perspective on Contracting: Evidenc e from Mississippi

Restricting the definition of contracting appears to diminish the importance of edu-
cation, but increase the importance of off-farm income. Education was weakly significant in
the previous mo del, so the fact that education is not significant in the second model is not
surprising and suggests that education is only a marginal indicator of contracting decisions.
In contrast, restricting the definition of contracting appears to increase the importance of off-
farm income. This may mean that diversification is not a factor that influences participation
in marketing pools, but does play a role in other forms of contracting.

5  Conclusions

Overall, this analysis suggests that the predictions of transactions cost economics appear
robust in a cross-commodity setting. That is, prior evidence from other studies have shown
transactions cost variables to be important within a given commodity.  The results in this

study suggest that these variable are generally imp ortant across commodities as well, which
provides strong evidence of the effects of transactions cost on contracting decisions.

A second important conclusion of this study is that price risk does not appear to
be a significant factor in contracting decisions. This is consistent with the findings of Allen
and Lueck. However, this does not mean that price risk does not affect individual decision-
making (or equivalently, it does not mean that producers are risk neutral). Rather, it simply
means that risk does not influence the decision of whether or not to contract.

Finally, while these results are important in establishing the role of transactions
cost in contracting decisions, they are not particularly useful in answering policy questions

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