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In the last decade, there has been a major rekindling of interest among economists in the form of institutions used to organize resources for production and distribution. Jensen (1983) distinguishes two "agency literatures" that share the comparative institutions perspective introduced by Coase (1937, 1960). Principal agency theory (e.g., Stiglitz 1975; Harris and Raviv 1978; Shavell 1979; H61mstrom 1979; Lewis 1980) provides a mathematical formulation of contractual choice and has been primarily directed to the trade-off between risksharing and incentives against labor shirking. Positive agency theory (pioneered by Coase 1937; resurrected by Alchian and Demsetz 1972; and currently represented, for example, by Fama and Jensen 1983a) is nonmathematical and places relatively more emphasis on explaining actual patterns that characterize industrial organization. In agriculture, the theory of organizational form has centered largely around tenure choice. The theory of tenure choice has an illustrious history in the economics literature (e.g., Smith 1922; Marshall 1920; Heady 1955; Day 1967; Cheung 1969; Rao 1971; Stiglitz 1974; Reid 1976; Newbery and Stiglitz 1979; Binswanger and Rosenzweig 1984). In recent years, alternative tenancy arrangements are commonly viewed as types of employment contracts (e.g., Newbery and Stiglitz 1979; Braverman and Stiglitz 1975; Harris and Raviv 1978; Shavell 1979; HW1mstrom 1979; Lewis 1980). In an innovative departure from the view of tenancy as an employment contract, Eswaran and Kotwal (1985) have modelled share tenancy as a partnership between a landowner who specializes in decision-making and a tenant who specializes in labor supervision. More generally, questions of tenure choice, employment contracts, manag ment systems, and farm size can all be usefully viewed as aspects of agricultural organization. The purpose of the present paper i to elucidate this view and to investigate tenure choice as a part of the general study of the nature and causes of the agricultural firm. The paper is organized to highlight the inductive approach employed. Section 2 classiies agricultural firms according to the degree of specialization and who gets the residual payment. The classification is combined with previously documented patterns of tenure choice in order to posit a preliminary hypothesi about the relationship between the econo ic environment and the nature of the agricultural firm. Section 3 uses a principalagency framework to construct a theory of the hypothesized relationship between the degree of separation between labor and management nd l nd quality. Section 4 provides an illustrative statistical verification of the hypothesis based on a sample of Philippine sugarcane f rms. Section 5 summarizes the paper and discusses two implications of the transaction cost approach for institutional design.

Agency Costs and the Agricultural Firm