Using experimental economics, we compare the efficiency and welfare effects of tournament and fixed standards contracts. Our findings suggest that economic agents are generally better off under fixed standard contracts unless they face substantial common shocks. Administrators of contracts (principals) also tend to be better off under fixed standard contracts for moderate to small common shocks. Efficiency wise, agents tend to exert higher effort under fixed standard contracts. Moreover, effort under tournaments appears to be declining in the variance of the common shock. Our results suggest that a ban on tournament contracts may generally be better off for both growers and processors except in cases where common shocks are large.
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Paper provided by American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association) in its series 2003 Annual meeting, July 27-30, Montreal, Canada with number
21938.
Length: Date of creation: 2003 Date of revision: Handle: RePEc:ags:aaea03:21938
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