Perspectives from New Institutional Economics
Edited by Claude Ménard
Chapter 14: The impact of paternalism on racial land rental differences in the USA
Lee J. Alston and Kyle D. Kauffman* INTRODUCTION Since the breakup of the former Soviet Union and coincident global privatization, there has been an increased interest in the role played by institutions.1 By institutions we mean the ‘rules of the game’, that is, the formal laws and informal norms in a society (North 1990). Despite the importance of laws and norms, there has been relatively little testing by economists of the role played by norms in affecting market behavior and outcomes.2 In part this is due to the inherent difﬁculty in measuring norms. In this chapter we are able to measure indirectly the impact that historical southern norms exerted in the cash rental markets for agricultural land. In the early twentieth century farmers in the US South had a variety of arrangements for combining land, labor and capital to produce output. The contract forms included wage, share crop, share tenancy and cash rent. From the landlord’s perspective, cash rent entailed the least risk from shortfalls in output as well as the least monitoring costs of labor effort because the cash renter was the residual claimant. Under conditions of competition, cash rents ought to reﬂect the productivity of land, that is, what a renter would be willing to pay for rent would be based on expected yields and prices. For a given farm value, competition would ensure that cash rents per acre as a percentage of value per acre should be equal across farmers within a given geographical region....
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