Advanced Search
MyIDEAS: Login to save this article or follow this journal

A model-based approach to moral hazard in food chains - What contribution do principal-agent-models make to the understanding of food risks induced by opportunistic behaviour?

Contents:

Author Info

  • Hirschauer, Norbert

Abstract

Food risks may be caused by moral hazard, i.e. by opportunistic behaviour of upstream sellers who exploit the fact that many food product qualities remain uncertain to downstream buyers in the course of conventional market transactions (credence qualities). Due to this lack of market transparency buyers run the risk to pay premium prices for inferior products (quality risks); furthermore, they run the risk to use or consume substances which are harmful (health risks). Therefore, they will want to design optimal contracts and controls preventing opportunistic behaviour. Usually, however, buyers cannot contract contingent on the actions of upstream sellers because they cannot observe them directly (information asymmetry). Motivated by the obviously game-theoretic nature of the problem, we investigate the potential of principal-agent-models for the analysis of food risks induced by opportunistic behaviour. We identify a binary stochastic moral hazard model which is able to represent the microeconomic situation of buyers (principals) and sellers (agents) adequately. On the one hand, the model considers the remuneration costs which are needed to induce compliance. On the other hand, it accounts for direct costs and benefits of control as well as a limited traceability caused by the multiple agents setting of most food risk problems. If we know the costs of compliance, the stochastic relationship between the agent’s action and the product quality, and the traceability coefficient, we are able to determine the optimal control intensity and price for any cost of control function and predefined upper limit of the imposable sanction. For practical applications the main problem will be how to procure empirical data. The manageable data requirements of the binary model qualify it as a ready to use model for future applications: first, it can be used in positive analyses of food chains in order to detect the hot spots where food risks induced by opportunistic behaviour are to be expected for economic reasons. Secondly, it can be used in normative analyses in order to identify contractual designs which induce compliance at minimum costs. Thirdly, it can be used in order to compare the efficiency of different system structures taking into account the costs of change.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://purl.umn.edu/97448
Download Restriction: no

Bibliographic Info

Article provided by Humboldt-Universitaet zu Berlin, Department for Agricultural Economics in its journal German Journal of Agricultural Economics.

Volume (Year): 53 (2004)
Issue (Month): 5 ()
Pages:

as in new window
Handle: RePEc:ags:gjagec:97448

Contact details of provider:
Postal: Philippstr. 13, 10115 Berlin
Phone: +49 (0)30 2093 6305
Fax: +49 (0)30 2093 6497
Web page: http://www.gjae-online.de/
More information through EDIRC

Related research

Keywords: food risk; information asymmetry; moral hazard; opportunistic behaviour; prevention; principal-agent-model; traceability; Agribusiness; Farm Management; Research Methods/ Statistical Methods; Risk and Uncertainty;

References

No references listed on IDEAS
You can help add them by filling out this form.

Citations

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

Cited by:
  1. Hirschauer, Norbert & Musshoff, Oliver & Scheerer, Sebastian, 2006. "An Interdisciplinary Approach to White-collar Crime in the Food Sector," 2006 Annual Meeting, August 12-18, 2006, Queensland, Australia 25688, International Association of Agricultural Economists.
  2. Hirschauer, Norbert & Musshoff, Oliver, 2007. "A game-theoretic approach to behavioral food risks: The case of grain producers," Food Policy, Elsevier, vol. 32(2), pages 246-265, April.
  3. Hirschauer, Norbert & Musshoff, Oliver, 2006. "Trust and the Profitability of Rule-Breaking in Grain Production," 99th Seminar, February 8-10, 2006, Bonn, Germany 7754, European Association of Agricultural Economists.
  4. Norbert Hirschauer & Stefan Zwoll, 2008. "Understanding and managing behavioural risks: the case of malpractice in poultry production," European Journal of Law and Economics, Springer, vol. 26(1), pages 27-60, August.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:ags:gjagec:97448. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (AgEcon Search).

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 references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link 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 profile, as there may be some citations waiting for confirmation.

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