This paper embeds a principal-agent model of producer-processor equilibrium within a market equilibrium model of contract and cash markets to analyze the impact of contracting on the spot market for hogs. The principal-agent model incorporates both quality differentiation in the contract market and an endogenously determined cash market price to account for processor-producer relationships in equilibrium. For five types of contracting scenarios, market equilibrium conditions are derived, and results are presented for a numerical example. Contrary to previous results, the paper finds that the increased supply of hogs under typical formula-price contracts can increase the cash market price and reduce its variance.
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Paper provided by American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association) in its series 2004 Annual meeting, August 1-4, Denver, CO with number
20313.
Length: Date of creation: 2004 Date of revision: Handle: RePEc:ags:aaea04:20313
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