Agricultural productivity gaps and incomplete contracts

This paper presents a simple model to examine how distortions associated with incomplete contracts may contribute to agricultural productivity gaps. Compared to industrial products, the perishable nature of agricultural production may amplify contractual frictions, leading to more pronounced distortions in the agricultural sector. The analysis suggests that such distortions may account for a substantial share of agricultural productivity gaps across countries. Developed countries, characterized by stronger legal systems, better enforcement, and lower information asymmetry, tend to exhibit smaller incomplete-contract distortions. Consequently, such distortions may account for up to about 73% of the agricultural productivity gap between developed and developing countries.