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Food Quality: The Design of Incentive Contracts

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  • Rachael E. Goodhue

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

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    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.

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    File URL: http://www.annualreviews.org/doi/abs/10.1146/annurev-resource-040709-135037
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    Bibliographic Info

    Article provided by Annual Reviews in its journal Annual Review of Resource Economics.

    Volume (Year): 3 (2011)
    Issue (Month): 1 (October)
    Pages: 119-140

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    Handle: RePEc:anr:reseco:v:3:y:2011:p:119-140

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    Related research

    Keywords: agricultural industrialization; asymmetric information; product differentiation; transaction cost economics; value differentiation; vertical coordination;

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    Cited by:
    1. 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.
    2. Anderson, Kym, 2013. "Is Georgia the next 'new' wine-exporting country?," Working Papers 162523, Robert Mondavi Institute Center for Wine Economics.

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