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Broiler Production Contracts as a Multi-Agent Problem: Common Risk, Incentives and Heterogeneity

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  • Rachael E. Goodhue

Abstract

The broiler industry presents two puzzles regarding production contracts: why do processors control growers' inputs, and why do they use a statistically insufficient estimator to calculate growers' compensation? This paper provides an agency theoretic framework that explains these puzzles in terms of processors' response to grower heterogeneity and production risk and to grower risk aversion. Processors control inputs to reduce the information rents paid to agents. By forcing agents to bear additional income risk through the use of an imprecise estimator, processors can increase profits, due to the combined moral hazard-adverse selection nature of the informational problem. Copyright 2000, Oxford University Press.

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  • Rachael E. Goodhue, 2000. "Broiler Production Contracts as a Multi-Agent Problem: Common Risk, Incentives and Heterogeneity," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 82(3), pages 606-622.
    • Handle: RePEc:oup:ajagec:v:82:y:2000:i:3:p:606-622
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    File URL: http://hdl.handle.net/10.1111/0002-9092.00050
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