Understanding agricultural land leasing in Ireland: a transaction cost approach

Formal written land leasing contracts offer an alternative to land purchase for those farmers wishing to expand their land area and provide greater security relative to informal short-term rental agreements and are particularly important for beginning farmers with resources insufficient to purchase land. Formal land leasing contracts vary in terms of their duration, but there is limited understanding about the determinants of contract duration in developed countries. In this research, we use econometric techniques and transaction level data to explore the determinants of duration for agricultural land lease contracts for two regions in Ireland. Under the transaction cost economics approach, the research explores the role of legal status, price and non-price conditions in influencing the contract duration. Results indicate that the legal status of the tenant is a significant factor in influencing the duration. Provisions such as break clauses appear positively related to duration and confirm the theoretical expectation that long-term contracts create a demand for processes that enable adaptation over the course of long-term exchange.