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The Quality-Quantity Trade-off in the Principal-Agent Framework

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  • Olmos, Marta Fernandez
  • Martinez, Jorge Rosell
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    Abstract

    This paper uses the principal-agent theory to analytically investigate the optimal incentive-based compensation contract that a processor should offer to a grower performing efforts in quantity and quality. In this process, we contribute to the substantive literature on multi-task principal-agent models by analyzing the quality-quantity trade-off and studying the implications of such a relationship in the principal-agent framework. One striking result of these effects is that, under appropriate incentive-based grower’s compensation, the processor may encourage grower’s effort in quality without crowding out grower’s effort in quantity.

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    Bibliographic Info

    Article provided by Greek Association of Agricultural Economists in its journal Agricultural Economics Review.

    Volume (Year): 11 (2010)
    Issue (Month): 1 (January)
    Pages:

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    Handle: RePEc:ags:aergaa:118578

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    Web page: http://www.etagro.gr/
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    Related research

    Keywords: quality; quantity; trade-off; incentive contract; principal-agent framework; uncertainty; Agribusiness; Agricultural and Food Policy; D86;

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