Cross-Commodity Perspective on Contracting: Evidenc e from Mississippi
a risk premium, in order to have some assurances about minimum income. Thus, the
expectation is that, holding risk aversion constant, increases in risk will lead to a greater
use of contracting. Similarly, holding risk constant, increases in the level of risk aversion
will lead to a greater use of contracting. Despite the theoretical arguments, little support
for the effects of risk (specifically, yield risk) on contracting have been found in agriculture
(Allen and Lueck; Le-er and Rucker). Nevertheless, the apparent importance of risk from
a theoretical perspective implies the need to at least examine the role of risk.
Another factor related to risk is income diversification. An increasing percentage of
farm household income is derived from off-farm sources. This diversification of household
income may lead to decreased risk exposure and, therefore, lead to an increased willingness
to take on additional risk in the farming enterprise. Similarly, crop diversification also has
overall risk reducing properties, and is thus, another variable of interest in understanding
contracting decisions.
3 Mississippi Producer Survey
To gain some perspective on the variables important to contracting from a cross-commodity
perspective, a survey of agricultural producers in Mississippi was conducted. Mississippi
was chosen because it has a diverse set of agricultural producers ranging from traditional row
crops to livestock to fruits and vegetables. The questionnaire was designed to elicit basic
information on several factors: farm size, crops grown, primary and secondary crop price ex-
pectations, level of autonomy in decision-making, involvement of lender in decision-making,