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Food Quality: The Design of Incentive Contracts

Author

Listed:
  • Rachael E. Goodhue

    (Department of Agricultural and Resource Economics, University of California, Davis, California 95616)

Abstract

Quality considerations are increasingly important drivers of production and coordination choices for players in the agrofood chain. Incentive contracts between farmers and processors, shippers, and other buyers are an increasingly popular means of coordinating to improve food quality. This review examines the economic literature regarding incentive contracts and the provision of food quality, with a focus on empirical analyses. Studies of specific value chains find that a desire for higher quality or specific quality attributes increases the likelihood that a contract, rather than the spot market, is used. Consistent with economic theory, studies regarding the selection of contract provisions find that financial incentives are used when an attribute is easily observable at the time of sale, whereas requirements for specific inputs and actions tend to be used when an attribute is not easily observable.

Suggested Citation

  • Rachael E. Goodhue, 2011. "Food Quality: The Design of Incentive Contracts," Annual Review of Resource Economics, Annual Reviews, vol. 3(1), pages 119-140, October.
    • Handle: RePEc:anr:reseco:v:3:y:2011:p:119-140
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    Citations

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    Cited by:

    1. Nguyen Hung Anh & Wolfgang Bokelmann & Ngo Thi Thuan & Do Thi Nga & Nguyen Van Minh, 2019. "Smallholders’ Preferences for Different Contract Farming Models: Empirical Evidence from Sustainable Certified Coffee Production in Vietnam," Sustainability, MDPI, vol. 11(14), pages 1-26, July.
    2. Julia Jouan & Aude Ridier & Matthieu Carof, 2019. "Economic Drivers of Legume Production: Approached via Opportunity Costs and Transaction Costs," Sustainability, MDPI, vol. 11(3), pages 1-14, January.
    3. Sabine Duvaleix & Marie Lassalas & Laure Latruffe & Vasilia Konstantidelli & Irene Tzouramani, 2020. "Adopting Environmentally Friendly Farming Practices and the Role of Quality Labels and Producer Organisations: A Qualitative Analysis Based on Two European Case Studies," Sustainability, MDPI, vol. 12(24), pages 1-16, December.
    4. Angelo Frascarelli & Stefano Ciliberti & Gustavo Magalhães de Oliveira & Gabriele Chiodini & Gaetano Martino, 2021. "Production Contracts and Food Quality: A Transaction Cost Analysis for the Italian Durum Wheat Sector," Sustainability, MDPI, vol. 13(5), pages 1-12, March.
    5. Rachael Goodhue & Leo Simon, 2016. "Agricultural contracts, adverse selection, and multiple inputs," Agricultural and Food Economics, Springer;Italian Society of Agricultural Economics (SIDEA), vol. 4(1), pages 1-33, December.
    6. Mariana Toussaint & Pablo Cabanelas & Pilar Muñoz-Dueñas, 2022. "Social sustainability in the food value chain: what is and how to adopt an integrative approach?," Quality & Quantity: International Journal of Methodology, Springer, vol. 56(4), pages 2477-2500, August.
    7. Mariana Toussaint & Pablo Cabanelas & Alicia Blanco‐González, 2021. "Social sustainability in the food value chain: An integrative approach beyond corporate social responsibility," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 28(1), pages 103-115, January.
    8. Badria Hamed Al Ruqishi & Tarig Gibreel & Faical Akaichi & Lokman Zaibet & Slim Zekri, 2020. "Contractual agriculture: better partnerships between small farmers and the business sector in the sultanate of Oman," Asian Journal of Agriculture and rural Development, Asian Economic and Social Society, vol. 10(1), pages 321-335, June.
    9. Ashok K. Mishra & Mike G. Tsionas, 2020. "A Minimax Regret Approach to Decision Making Under Uncertainty," Journal of Agricultural Economics, Wiley Blackwell, vol. 71(3), pages 698-718, September.
    10. Russo, Carlo & Perito, Maria Angela & Di Fonzo, Antonella, 2014. "Using Private Food Safety Standards to Manage Complexity: A Moral Hazard Perspective," Agricultural Economics Review, Greek Association of Agricultural Economists, vol. 15(2), pages 1-15.
    11. Stefano Ciliberti & Marcello Stanco & Angelo Frascarelli & Giuseppe Marotta & Gaetano Martino & Concetta Nazzaro, 2022. "Sustainability Strategies and Contractual Arrangements in the Italian Pasta Supply Chain: An Analysis under the Neo Institutional Economics Lens," Sustainability, MDPI, vol. 14(14), pages 1-18, July.
    12. Kym Anderson, 2019. "Is Georgia the Next “New” Wine-Exporting Country?," World Scientific Book Chapters, in: Kym Anderson (ed.), The International Economics of Wine, chapter 13, pages 311-345, World Scientific Publishing Co. Pte. Ltd..
    13. Mahdi, Shireen, 2012. "Quality contingent contracts : evidence from Tanzania's coffee market," Policy Research Working Paper Series 6171, The World Bank.
    14. Shikur, Zewdie Habte & Legesse, Belainch & Haji, Jema & Jelata, Moti, 2020. "Governance structures and incentives in the wheat value chain in Ethiopia," African Journal of Agricultural and Resource Economics, African Association of Agricultural Economists, vol. 15(2), June.
    15. Vítězslav DOUBEK & Jaroslav ŠVASTA & Lucie ACKERMANN BLAŽKOVÁ, 2012. "Agricultural trade in example of milk from perspective of multi-criteria analysis," Agricultural Economics, Czech Academy of Agricultural Sciences, vol. 58(7), pages 315-323.
    16. Kym Anderson, 2012. "Rural Development in Georgia: What Role for Wine Export Growth?," Wine Economics Research Centre Working Papers 2012-01, University of Adelaide, Wine Economics Research Centre.
    17. Jebaraj Asirvatham & Sanjib Bhuyan, 2018. "Incentives and Impacts of Vertical Coordination in a Food Production-Marketing Chain: A Non-cooperative Multi-Stage, Multi-Player Analysis," Journal of Industry, Competition and Trade, Springer, vol. 18(1), pages 59-95, March.
    18. Hussein, Mohamud & Martinez, Marian Garcia & Fearne, Andrew, 2013. "On The Efficiency of Management-Based Regulation: A Case Study of the UK Poultry Inspection Regime," 87th Annual Conference, April 8-10, 2013, Warwick University, Coventry, UK 158856, Agricultural Economics Society.
    19. Fanny Widadie & Jos Bijman & Jacques Trienekens, 2021. "Farmer preferences in contracting with modern retail in Indonesia: A choice experiment," Agribusiness, John Wiley & Sons, Ltd., vol. 37(2), pages 371-392, April.
    20. Abebe, Gumataw K. & Bijman, Jos & Kemp, Ron & Omta, Onno & Tsegaye, Admasu, 2013. "Contract farming configuration: Smallholders’ preferences for contract design attributes," Food Policy, Elsevier, vol. 40(C), pages 14-24.

    More about this item

    Keywords

    agricultural industrialization; asymmetric information; product differentiation; transaction cost economics; value differentiation; vertical coordination;
    All these keywords.

    JEL classification:

    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
    • L66 - Industrial Organization - - Industry Studies: Manufacturing - - - Food; Beverages; Cosmetics; Tobacco
    • Q13 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agricultural Markets and Marketing; Cooperatives; Agribusiness

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