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Aligning Incentives for Contract Dairy Heifer Growth

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  • Olynk, Nicole J.
  • Wolf, Christopher A.

Abstract

As dairy farms grow and specialize in milking cows, raising replacement heifers is increasingly outsourced. Perhaps the largest challenge of outsourcing the heifer enterprise involves quality, measured as milk production potential, and the possibility for moral hazard due to hidden action on the part of the custom heifer grower. A principal-agent framework was used to elicit contract terms to provide incentives for the heifer grower to achieve desired growth rates, and enable the return of the heifer to the dairy farm on an accelerated time frame, without sacrificing quality. To mitigate incentive asymmetries, bonuses and deductions are proposed.

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Bibliographic Info

Article provided by Western Agricultural Economics Association in its journal Journal of Agricultural and Resource Economics.

Volume (Year): 35 (2010)
Issue (Month): 3 (December)
Pages:

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Handle: RePEc:ags:jlaare:99109

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Web page: http://waeaonline.org/
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Related research

Keywords: contracts; heifer growth; moral hazard; principal agent; Livestock Production/Industries;

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  1. Resende-Filho, Moises & Buhr, Brian, 2006. "A Principal-Agent Model for Evaluating the Economic Value of a Beef Traceability System: A Case Study with Injection-site Lesions Control in Fed Cattle," MPRA Paper 467, University Library of Munich, Germany.
  2. Moises A. Resende-Filho & Brian L. Buhr, 2008. "A Principal-Agent Model for Evaluating the Economic Value of a Traceability System: A Case Study with Injection-site Lesion Control in Fed Cattle," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 90(4), pages 1091-1102.
  3. Macho-Stadler, Ines & Perez-Castrillo, J. David, 2001. "An Introduction to the Economics of Information: Incentives and Contracts," OUP Catalogue, Oxford University Press, edition 2, number 9780199243259, September.
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