IDEAS home Printed from https://ideas.repec.org/a/ags/aareaj/116979.html
   My bibliography  Save this article

Contract theory and agricultural policy analysis: a discussion and survey of recent developments

Author

Listed:
  • Wu, Steven Y.

Abstract

This paper surveys some recent developments in contract theory and illustrates how this theory might be useful for conceptualising policy issues related to vertical coordination and contracting in the agro-food industry. The article begins by surveying contract theory to identify key economic distortions that can potentially justify government involvement. Next, the general ingredients of agricultural contracts that are most likely to create inefficiencies are discussed. Finally, controversial aspects of real-world agricultural contracts are highlighted and lessons from the theory are used to determine whether government intervention is justified. Actual legislation that has been proposed in the USA is analysed where appropriate and topics that await further research are also discussed.

Suggested Citation

  • Wu, Steven Y., 2006. "Contract theory and agricultural policy analysis: a discussion and survey of recent developments," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 50(4), pages 1-20, December.
  • Handle: RePEc:ags:aareaj:116979
    DOI: 10.22004/ag.econ.116979
    as

    Download full text from publisher

    File URL: https://ageconsearch.umn.edu/record/116979/files/j.1467-8489.2006.00317.x.pdf
    Download Restriction: no

    File URL: https://libkey.io/10.22004/ag.econ.116979?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Oriana Bandiera & Iwan Barankay & Imran Rasul, 2005. "Social Preferences and the Response to Incentives: Evidence from Personnel Data," The Quarterly Journal of Economics, Oxford University Press, vol. 120(3), pages 917-962.
    2. Oliver Hart & John Moore, 1999. "Foundations of Incomplete Contracts," Review of Economic Studies, Oxford University Press, vol. 66(1), pages 115-138.
    3. Brousseau,Eric & Glachant,Jean-Michel (ed.), 2002. "The Economics of Contracts," Cambridge Books, Cambridge University Press, number 9780521893138, October.
    4. Eric Maskin & Jean Tirole, 1999. "Unforeseen Contingencies and Incomplete Contracts," Review of Economic Studies, Oxford University Press, vol. 66(1), pages 83-114.
    5. Ernst Fehr & Klaus M. Schmidt, 1999. "A Theory of Fairness, Competition, and Cooperation," The Quarterly Journal of Economics, Oxford University Press, vol. 114(3), pages 817-868.
    6. Hueth, Brent & Ligon, Ethan, 2003. "On the Efficacy of Contractual Provisions for Processing Tomatoes," 2003 Annual meeting, July 27-30, Montreal, Canada 21990, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    7. Aghion, Philippe & Tirole, Jean, 1997. "Formal and Real Authority in Organizations," Journal of Political Economy, University of Chicago Press, vol. 105(1), pages 1-29, February.
    8. Grossman, Sanford J & Hart, Oliver D, 1986. "The Costs and Benefits of Ownership: A Theory of Vertical and Lateral Integration," Journal of Political Economy, University of Chicago Press, vol. 94(4), pages 691-719, August.
    9. Jonathan Levin, 2003. "Relational Incentive Contracts," American Economic Review, American Economic Association, vol. 93(3), pages 835-857, June.
    10. Lee, Myoungki & Wu, Steven Y., 2005. "Termination Damages and Relational Contracts," 2005 Annual meeting, July 24-27, Providence, RI 19184, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    11. Theofanis Tsoulouhas & Tomislav Vukina, 2001. "Regulating Broiler Contracts: Tournaments Versus Fixed Performance Standards," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 83(4), pages 1062-1073.
    12. Nöldeke, Georg & Schmidt, Klaus M., 1995. "Option contracts and renegotiation," Munich Reprints in Economics 19329, University of Munich, Department of Economics.
    13. Klein, Benjamin & Crawford, Robert G & Alchian, Armen A, 1978. "Vertical Integration, Appropriable Rents, and the Competitive Contracting Process," Journal of Law and Economics, University of Chicago Press, vol. 21(2), pages 297-326, October.
    14. Matthew Rabin, 1998. "Psychology and Economics," Journal of Economic Literature, American Economic Association, vol. 36(1), pages 11-46, March.
    15. Steven Wu & Brian Roe, 2006. "Tournaments, Fairness, and Risk," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 88(3), pages 561-573.
    16. Steven Wu & Brian Roe, 2005. "Behavioral and Welfare Effects of Tournaments and Fixed Performance Contracts: Some Experimental Evidence," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 87(1), pages 130-146.
    17. Brousseau,Eric & Glachant,Jean-Michel (ed.), 2002. "The Economics of Contracts," Cambridge Books, Cambridge University Press, number 9780521814904, October.
    18. Georg Noldeke & Klaus M. Schmidt, 1995. "Option Contracts and Renegotiation: A Solution to the Hold-Up Problem," RAND Journal of Economics, The RAND Corporation, vol. 26(2), pages 163-179, Summer.
    19. Alan Schwartz & Robert Scott, "undated". "Contract Theory and the Limits of Contract Law," Yale Law School John M. Olin Center for Studies in Law, Economics, and Public Policy Working Paper Series yale_lepp-1011, Yale Law School John M. Olin Center for Studies in Law, Economics, and Public Policy.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Tian Xia & John M. Crespi & Kevin C. Dhuyvetter, 2019. "Could packers manipulate spot markets by tying contracts to futures prices? And do they?," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 67(1), pages 85-102, March.
    2. Steven Y. Wu, 2014. "Adapting Contract Theory to Fit Contract Farming," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 96(5), pages 1241-1256.
    3. Ian M. Sheldon, 2021. "Reflections on a Career as an Industrial Organization and International Economist," Applied Economic Perspectives and Policy, John Wiley & Sons, vol. 43(2), pages 468-499, June.
    4. Escobal, Javier A. & Cavero, Denice, 2012. "Transaction Costs, Institutional Arrangements and Inequality Outcomes: Potato Marketing by Small Producers in Rural Peru," World Development, Elsevier, vol. 40(2), pages 329-341.
    5. Goodrich, Brittney K. & Goodhue, Rachael E., 2020. "Are All Colonies Created Equal? The Role of Honey Bee Colony Strength in Almond Pollination Contracts," Ecological Economics, Elsevier, vol. 177(C).
    6. H. Holly WANG & Jong Won PARK & Timothy BAKER, 2011. "Contracting, negotiation, and the policy change: The conflict between Korean farmers and their agricultural coo," Agricultural Economics, Czech Academy of Agricultural Sciences, vol. 57(10), pages 467-473.
    7. Martino, Gaetano & Frascarelli, Angelo, 2012. "Adaptation in Food Networks: theoretical framework and empirical evidences," MPRA Paper 37600, University Library of Munich, Germany.
    8. Annie Royer & Daniel M. Gouin, 2015. "Coordination verticale dans les secteurs québécois du porc et des légumes de transformation : statut, motivations et enjeux," CIRANO Project Reports 2015rp-03, CIRANO.
    9. Martino, Gaetano & Frascarelli, Angelo, 2012. "Adaptation in Food Networks: Theoretical Frame Work and Empirical Evidences," 2012 International European Forum, February 13-17, 2012, Innsbruck-Igls, Austria 144981, International European Forum on System Dynamics and Innovation in Food Networks.
    10. Clerson, Frederick & Royer, Annie & Duchesne, Erick, 2016. "Des quotas aux contrats : perceptions de la filière laitière suisse et analyse contractuelle," Économie rurale, French Society of Rural Economics (SFER Société Française d'Economie Rurale), vol. 356(November-).
    11. Malchar-Michalska, Dominika, 2014. "Koordynacja Transakcji Między Grupami Producentów Rolnych A Przemysłem Spożywczym. Studium Przypadku," Village and Agriculture (Wieś i Rolnictwo), Polish Academy of Sciences (IRWiR PAN), Institute of Rural and Agricultural Development, vol. 3(164).
    12. Cordero Salas, Paula, 2016. "Relational Contracts and Product Quality: The Effect of Bargaining Power on Efficiency and Distribution," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 41(3), pages 1-19.
    13. Dell'Aquila, Crescenzo & Petriccione, Gaetana, 2012. "The EU Fruit and Vegetable Sector in the Post 2013 CAP Scenario," Politica Agricola Internazionale - International Agricultural Policy, Edizioni L'Informatore Agrario, vol. 2012(1), pages 1-16, August.
    14. Luca Camanzi & Giorgia Bartoli & Beatrice Biondi & Giulio Malorgio, 2018. "A Structural-Functional Theory approach to vertical coordination in agri-food supply chains: Insights from the "Gran Suino Italiano" Inter-branch Organisation," Economia agro-alimentare, FrancoAngeli Editore, vol. 20(2), pages 169-180.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Antonio Nicita & Ugo Pagano, 2005. "Incomplete Contracts and Institutions," Chapters, in: Jürgen G. Backhaus (ed.), The Elgar Companion to Law and Economics, Second Edition, chapter 10, Edward Elgar Publishing.
    2. Hoppe, Eva I. & Schmitz, Patrick W., 2011. "Can contracts solve the hold-up problem? Experimental evidence," Games and Economic Behavior, Elsevier, vol. 73(1), pages 186-199, September.
    3. Makoto Hanazono, 2004. "Holdup with Subsidized Investment," Econometric Society 2004 Far Eastern Meetings 640, Econometric Society.
    4. Robert Evans, 2008. "Simple Efficient Contracts in Complex Environments," Econometrica, Econometric Society, vol. 76(3), pages 459-491, May.
    5. Ernst Fehr & Michael Powell & Tom Wilkening, 2014. "Handing Out Guns at a Knife Fight: Behavioral Limitations of Subgame-Perfect Implementation," CESifo Working Paper Series 4948, CESifo.
    6. Committee, Nobel Prize, 2016. "Oliver Hart and Bengt Holmström: Contract Theory," Nobel Prize in Economics documents 2016-1, Nobel Prize Committee.
    7. Donald B. Hausch & Yeon-Koo Che, 1999. "Cooperative Investments and the Value of Contracting," American Economic Review, American Economic Association, vol. 89(1), pages 125-147, March.
    8. Fehr, Ernst & Powell, Michael & Wilkening, Tom, 2021. "Behavioral Constraints on the Design of Subgame-Perfect Implementation Mechanisms," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 111(4), pages 1055-1091.
    9. Robert Gibbons & John Roberts, 2012. "The Handbook of Organizational Economics," Economics Books, Princeton University Press, edition 1, volume 1, number 9889.
    10. Ilya Segal & Michael D.Whinston, 2012. "Property Rights [The Handbook of Organizational Economics]," Introductory Chapters,, Princeton University Press.
    11. Alessandro De Chiara, 2018. "Courts' Decisions, Cooperative Investments, and Incomplete Contracts," CEU Working Papers 2018_5, Department of Economics, Central European University.
    12. Aghion, Philippe & Dewatripont, Mathias & Rey, Patrick, 2002. "On partial contracting," European Economic Review, Elsevier, vol. 46(4-5), pages 745-753, May.
    13. Kirsten Foss & Nicolai J. Foss, 1999. "Understanding Ownership Residual Rights of Control and Appropriable Control Rights," DRUID Working Papers 99-4, DRUID, Copenhagen Business School, Department of Industrial Economics and Strategy/Aalborg University, Department of Business Studies.
    14. Eduard Marinov, 2016. "The 2016 Nobel Prize in Economics," Economic Thought journal, Bulgarian Academy of Sciences - Economic Research Institute, issue 6, pages 97-149.
    15. Yeon-Koo Che & Jozsef Sakovics, 2006. "The Hold-up Problem," Edinburgh School of Economics Discussion Paper Series 142, Edinburgh School of Economics, University of Edinburgh.
    16. Gibbons, Robert, 2005. "Four forma(lizable) theories of the firm?," Journal of Economic Behavior & Organization, Elsevier, vol. 58(2), pages 200-245, October.
    17. Leonardo Felli & Kevin Roberts, 2016. "Does Competition Solve the Hold-up Problem?," Economica, London School of Economics and Political Science, vol. 83(329), pages 172-200, January.
    18. Matthew J. Baker & Joyce P. Jacobsen, 2007. "A Human Capital-Based Theory of Postmarital Residence Rules," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 23(1), pages 208-241, April.
    19. Buzard, Kristy & ,, 2012. "Contract, renegotiation, and hold up: Results on the technology of trade and investment," Theoretical Economics, Econometric Society, vol. 7(2), May.
    20. Oliver Hart & John Moore, 2004. "Agreeing Now to Agree Later: Contracts that Rule Out but do not Rule In," Edinburgh School of Economics Discussion Paper Series 109, Edinburgh School of Economics, University of Edinburgh.

    More about this item

    Keywords

    Agricultural and Food Policy;

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ags:aareaj:116979. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: AgEcon Search (email available below). General contact details of provider: https://edirc.repec.org/data/aaresea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.