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Producer Price Risk and Quality Measurement

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  • Brent Hueth
  • Ethan Ligon

Abstract

Risk-averse farmers in the produce industry grow a product whose market price is often quite unpredictable. Shippers or other intermediaries shield the farmer from much of this price risk; however, actual contracts between growers and shippers vary considerably across commodities in the residual price risk growers face. We hypothesize that imperfect quality measurement results in a moral hazard problem, and that price provides additional information regarding quality. As a consequence, an efficient contract does not shield growers from all idiosyncratic price risk. We examine this hypothesis for the case of fresh-market tomatoes. Copyright 1999, Oxford University Press.

Suggested Citation

  • Brent Hueth & Ethan Ligon, 1999. "Producer Price Risk and Quality Measurement," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 81(3), pages 512-524.
    • Handle: RePEc:oup:ajagec:v:81:y:1999:i:3:p:512-524
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    File URL: http://hdl.handle.net/10.2307/1244011
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