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Interactions between Explicit and Implicit Contracting: Evidence from California Agriculture

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Author Info
Hueth, Brent
Ligon, Ethan
Melkonyan, Tigran

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Abstract

We examine interactions among explicit and implicit contracting practices for a sample of 385 intermediaries in California fruit and vegetable markets. Explicit practices are measured with an indicator for the existence of a formal contract, and with indicators for various contract specifications (e.g., target delivery date, volume, acreage). Implicit practices are measured directly with a question about the existence of an “implicit understanding,” and indirectly with questions about the extent of informal involvement in farm-level decision making. Firms that manufacture processed foods, and that grow in house a portion of their total farm input, are significantly more likely to report use of explicit and implicit contracting practices. Additionally, unobserved factors that influence the use of explicit and implicit contracting are positively correlated. These findings suggest a complementary relationship between formal and informal contracts.

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Publisher Info
Paper provided by American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association) in its series 2008 Annual Meeting, July 27-29, 2008, Orlando, Florida with number 6068.

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Date of creation: 2008
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Handle: RePEc:ags:aaea08:6068

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Related research
Keywords: Agribusiness; Farm Management;

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  3. Brent Hueth & Ethan Ligon, 2002. "Estimation of an efficient tomato contract," European Review of Agricultural Economics, Oxford University Press for the Foundation for the European Review of Agricultural Economics, vol. 29(2), pages 237-253, June.
    Other versions:
  4. Frey, Bruno S, 1997. "A Constitution for Knaves Crowds Out Civic Virtues," Economic Journal, Royal Economic Society, vol. 107(443), pages 1043-53, July. [Downloadable!] (restricted)
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  8. Falk, Armin & Kosfeld, Michael, 2004. "Distrust - The Hidden Cost of Control," IZA Discussion Papers 1203, Institute for the Study of Labor (IZA). [Downloadable!]
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  9. Frey, Bruno S & Jegen, Reto, 2001. " Motivation Crowding Theory," Journal of Economic Surveys, Blackwell Publishing, vol. 15(5), pages 589-611, December. [Downloadable!] (restricted)
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  15. Iris Bohnet & Bruno S. Frey & Steffen Huck, . "More Order with Less Law: On Contract Enforcement, Trust, and Crowding," IEW - Working Papers iewwp052, Institute for Empirical Research in Economics - IEW. [Downloadable!]
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  17. Klein, Benjamin & Murphy, Kevin M, 1997. "Vertical Integration as a Self-Enforcing Contractual Arrangement," American Economic Review, American Economic Association, vol. 87(2), pages 415-20, May. [Downloadable!] (restricted)
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