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On the Efficacy of Contractual Provisions for Processing Tomatoes

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  • Hueth, Brent
  • Ligon, Ethan

Abstract

This paper uses extensive data on production outcomes for processing tomato growers in California to examine the efficacy of explicit incentives observed in grower-processor contracts. Our data include all deliveries of tomatoes to some 51 processors over a period of 7 years in which at least 65 unique types of contracts are employed. Results indicate that incentives account for a significant proportion of observed variation in production outcomes, and that complementarities across different sorts of "incentive instruments" play a prominent role in contract design. Although explicit incentives explain a substantial portion of the variation in production outcomes relative to that which could be explained by incentives (as captured by processor/year fixed effects), there remains considerable variation which might be accounted for by unobserved or implicit incentives. Finally, we control for a quite exhaustive set of factors other than incentive provisions that might conceivably affect expected production outcomes, yet are still left with a substantial amount of unexplained variation.

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Bibliographic Info

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 21990.

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Date of creation: 2003
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Handle: RePEc:ags:aaea03:21990

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Keywords: Crop Production/Industries;

References

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  1. Paarsch, Harry J. & Shearer, Bruce, 1996. "Piece Rates, Fixed Wages, and Incentive Effects: Statistical Evidence from Payroll Records," Cahiers de recherche 9623, Université Laval - Département d'économique.
  2. Edward P. Lazear, 2000. "Performance Pay and Productivity," American Economic Review, American Economic Association, vol. 90(5), pages 1346-1361, December.
  3. Ichniowski, Casey & Shaw, Kathryn & Prennushi, Giovanna, 1997. "The Effects of Human Resource Management Practices on Productivity: A Study of Steel Finishing Lines," American Economic Review, American Economic Association, vol. 87(3), pages 291-313, June.
  4. Hueth, Brent & Ligon, Ethan, 1999. "Agricultural Supply Response Under Contract," Staff General Research Papers 5039, Iowa State University, Department of Economics.
  5. Hueth, Brent & Ligon, Ethan, 1999. "Producer Price Risk and Quality Measurement," Staff General Research Papers 5037, Iowa State University, Department of Economics.
  6. Ivilina Popova & Joseph G. Haubrich, 1998. "Executive compensation: a calibration approach," Economic Theory, Springer, vol. 12(3), pages 561-581.
  7. Canice Prendergast, 1999. "The Provision of Incentives in Firms," Journal of Economic Literature, American Economic Association, vol. 37(1), pages 7-63, March.
  8. Wooldridge, Jeffrey M., 1995. "Selection corrections for panel data models under conditional mean independence assumptions," Journal of Econometrics, Elsevier, vol. 68(1), pages 115-132, July.
  9. Ligon, Ethan, 2002. "Estimation of an Efficient Tomato Contract," Staff General Research Papers 10235, Iowa State University, Department of Economics.
  10. Holmstrom, Bengt & Milgrom, Paul, 1991. "Multitask Principal-Agent Analyses: Incentive Contracts, Asset Ownership, and Job Design," Journal of Law, Economics and Organization, Oxford University Press, vol. 7(0), pages 24-52, Special I.
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Cited by:
  1. Just, David R. & Wu, Steven Y., 2005. "Loss Aversion and Reference Points in Contracts," SCC-76 Meeting, March 31-April 2, 2005, Myrtle Beach, SC 28727, SCC-76: Economics and Management of Risk in Agriculture and Natural Resources.
  2. MacDonald, James M. & Perry, Janet E. & Ahearn, Mary Clare & Banker, David E. & Chambers, William & Dimitri, Carolyn & Key, Nigel D. & Nelson, Kenneth E. & Southard, Leland W., 2004. "Contracts, Markets, and Prices: Organizing the Production and Use of Agricultural Commodities," Agricultural Economics Reports 34013, United States Department of Agriculture, Economic Research Service.

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