Landlord Satisfaction with Arkansas Agricultural Land Agreements

Article excerpt

Landlord satisfaction levels with agricultural land-leasing agreements are examined with a 1998 sample of Arkansas landowners. Ordered probit models are estimated identifying which factors significantly affect satisfaction levels. Results indicate that the type of lease is not a significant determinant of landlord satisfaction levels. Proportion of landlord's income from leasing, tenant educational background, social capital variables, presence of irrigation equipment, and perceptions about the FAIR Act were found to significantly affect lease satisfaction in at least one of the three satisfaction models estimated. A comparison with an earlier study of Arkansas tenants indicates landlords have generally higher satisfaction levels.

Key Words: cropland contracts, landlord satisfaction, leasing, probit models

JEL Classifications: L14, Q12, Q24

Although leasing plays an important role in the structure of U.S. agriculture, the U.S. land leasing literature lacks extensive empirical analysis at the lease level, as noted by Bierlen and Parsch. Most existing research using U.S. data focuses on leasing contract design and the motivations for using specific leasing arrangements. Empirical analyses of U.S. leasing include Alien and Lueck (1992, 1993), Bierlen et al., Brown and Atkinson, and Gwilliam. The scarcity of studies at the lease level is likely due to a lack of good lease-level data. Lease-level data are difficult to collect because of the private nature of the agreements and the highly localised markets within which they are negotiated. Also, Rainey et al. note the potential unwillingness of tenants and landlords to release proprietary information and the reluctance of data-collecting agencies to overburden potential respondents with numerous or long surveys.

The extent and continuation of leasing as an institution depend on adequate tenant and landlord satisfaction with leasing. A major shortcoming of most empirical leasing behavior studies that use data from individual leases is the lack of data about the landlord. Typically, data are gathered from tenants about their farming operation and personal characteristics. The landlords are not interviewed, and the only information gathered about them is through the tenant, which clearly could be subject to bias or simple ignorance. As the landowner and the second party in the lease, landlords are an important component in the leasing process.

Landlord satisfaction is important. In perfect markets, one would expect landlords to be satisfied because they can do no better than their present arrangement. However, land markets are local in nature and information about rental prices and land supply can be hard to obtain (Barry et al.). Lessees might be few. In addition, landlords can be distant from the property and not possess much knowledge about the parcel or agriculture in general. Information asymmetries between landlord and tenant might be present. Hence, dissatisfaction could arise and presage changes in contract type, terms, or ownership of the parcel. The objective of this study is to identify the determinants of landlord satisfaction. In particular, the question of whether lease terms or other factors are the more important determinants of satisfaction is explored.

An ideal sample would consist of data on both landlord and tenant for a given parcel. However, such data would be very difficult to gather because both parties would have to consent. In this study, data are obtained from a mail and telephone survey of landlords leasing land in Arkansas. As such, the sample provides a complementary study to that of Bierlen and Parsch, who used tenant data. However, the two samples are from distinctly different points in time (1998 versus 1991 in Bierlen and Parsch) and are not for the same parcels as in the prior study. The policy settings between the 1991 sample and the 1998 sample are quite different, too. The 1991 sample was for a policy regime characterized by target prices and deficiency payments. …