The Role of Risk in Farmland Contract Choices

Understanding the role of risk in farmland leasing contract choices is important to assess the welfare consequences of farm policies or environmental changes that affect production risk. We use a unique dataset of landowners and tenants in Kansas to examine the role of risk in their farmland leasing contract choices. We find that greater production risk and more risk-averse landowners encourage fixed cash rent contracts. As many variables can potentially affect contract choices, we use a penalized regression to show that the inclusion of relationship variables leads to little change in the main results.