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Farmer Case

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Submitted By yemisieros
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Case Assignment #1:

The Farmer and the Landlord

Group Members:
Abi Erogbogbo
Tierra Pearson

_____________________________________________________________

Choice of Contract Structure
Advising Farmer
Given the volatility and uncertainty associated with farming, the Farmer will be better off with a contract that makes allowance to insure against a poor harvest and financial incentive when the harvest is profitable. An employment contract will be best for the farmer. With employment, the farmer will not be over-burdened with the financial responsibility of paying substantial monthly rent, in a month/period where his harvest has not been profitable. The agreement will depend heavily on the effort, expertise, and harvest of the farmer. This may not be a very attractive option for the Landowner, but if I were advising the farmer an employment contract will be most preferred.
Advising Landowner
As a landowner, my major objective is to derive the maximum profits from renting/leasing out my land. Land is a fixed asset; hence it should be able to generate a constant cash inflow for the owner. However, if the team were advising a landowner, a constant annuity (i.e. monthly rent) will be the preferred option. This monthly rent will serve as a fixed income for the landowner regardless of how well the farmer’s harvest is doing. With this contract option, the Landowner is protected from the liability that may be incurred if the farmer’s harvest results in a loss. The landowner has a guaranteed amount on cash inflow, which is not dependent on the effort of the farmer. Preferred contract is tenancy.
However, given the above choice of contract for the two parties, it is essential to note that an agreeable contract is one that is mutually beneficial to the parties involved. As much as the landowner will like to maximize his profits, and the farmer,

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