Contract Duration and Investment Incentives: Evidence from Land Tenancy Agreements

This paper analyses the empirical determinants of contract length, a key andyet neglected dimension of contractual structure. I estimate contract length andcontract type jointly using original data on tenancy agreements signed between1870 and 1880 in the district of Siracusa, Italy.The findings indicate that the choice of contract length is driven by theneed to provide incentives for non observable investment, taking into accounttransaction costs and imperfections in the credit markets that make incentiveprovision costly. The results also illustrate that since both length and thecompensation scheme are used to provide incentives within the same contract,joint analysis is important for a correct interpretation of the evidence.[...]