We investigate the design of a two-period contract between an agricultural processor and growers whose quality-ability types are not observable to the processor. After characterizing the optimal contracts and establishing conditions for a separating equilibrium, we investigate how a payment based on first-period reputation may induce more first-period effort. We show that this reputation-based payment can improve both the processorÂ's and the growerÂ's welfare, resulting in a dominant equilibrium.
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Paper provided by American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association) in its series 2005 Annual meeting, July 24-27, Providence, RI with number
19543.
Length: Date of creation: 2005 Date of revision: Handle: RePEc:ags:aaea05:19543
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