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Quality Measurement and Contract Design: Lessons from the North American Sugarbeet Industry

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  • Brent Hueth
  • Tigran Melkonyan

Abstract

We examine contracts used in the North American sugarbeet industry. Though quite similar in many respects, the contracts we study vary across processing firms in the set of quality measures used to condition contract payments to growers. This is somewhat surprising given the homogeneous nature of the processors’ finished product (refined sugar). It seems unlikely that processors differ significantly in how they value the various attributes of a sugarbeet, and this is perhaps the most natural reason to expect differences in the structure of quality incentives across processors. Previous attempts to explain the observed variation in sugarbeet contracts have focused on differences in organizational form across firms. In this paper, we provide an alternative explanation that relies on variation across production regions in growers’ ability to ‘control’ the relevant measures of sugarbeet quality.
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Suggested Citation

  • Brent Hueth & Tigran Melkonyan, 2004. "Quality Measurement and Contract Design: Lessons from the North American Sugarbeet Industry," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 52(2), pages 165-181, July.
    • Handle: RePEc:bla:canjag:v:52:y:2004:i:2:p:165-181
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    File URL: http://hdl.handle.net/10.1111/j.1744-7976.2004.tb00100.x
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    References listed on IDEAS

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    1. Grossman, Sanford J & Hart, Oliver D, 1983. "An Analysis of the Principal-Agent Problem," Econometrica, Econometric Society, vol. 51(1), pages 7-45, January.
    2. Michael E. Sykuta & Michael L. Cook, 2001. "A New Institutional Economics Approach to Contracts and Cooperatives," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 83(5), pages 1273-1279.
    3. Kim, Son Ku, 1995. "Efficiency of an Information System in an Agency Model," Econometrica, Econometric Society, vol. 63(1), pages 89-102, January.
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    Cited by:

    1. Brent Hueth & Philippe Marcoul & Roger G. Ginder, 2004. "Cooperative Formation and Financial Contracting in Agricultural Markets," Center for Agricultural and Rural Development (CARD) Publications 03-wp349, Center for Agricultural and Rural Development (CARD) at Iowa State University.
    2. Jaenicke, Edward C. & Shields, Martin & Kelsey, Timothy W., 2007. "Food Processors' Use of Contracts to Purchase Agricultural Inputs: Evidence from a Pennsylvania Survey," Agricultural and Resource Economics Review, Cambridge University Press, vol. 36(2), pages 213-229, October.
    3. Gregory McKee & Michael Boland & Alex Offerdahl, 2009. "American Crystal Sugar Company: Making Ethanol from Sugar Beets?," Review of Agricultural Economics, Agricultural and Applied Economics Association, vol. 31(2), pages 383-392, June.

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