Dancing with the Dragon Heads: Enforcement, Innovations and Efficiency of Contracts between Agricultural Processors and Farmers in China
AbstractContractual breaches are very common in developing countries such as China. In order to prevent breaches of contract, the contractual designs between farmers and agricultural processors (Dragon Head Firms) in China are innovating in two ways: organizational innovations and contractual innovations. Due to contractual innovations, simple price-quantity contracts are evolving into complex cooperation contracts. Using data for over 500 state key processors in 2003 from the Chinese Ministry of Agriculture, we construct econometric models to study contractual choices, contract intensity, and their impacts on sales and profits for agricultural processors in China. The results indicate that capital and the number of contracted farmers are endogenous to contract choices. Processors are more likely to use cooperation contracts compared with price-quantity contracts as the number of contracted farmers increases, because the costs of coordinating, monitoring and enforcing price-quantity contracts may increase dramatically under these circumstances . On the other hand, contract types are not important for the number of contracted farmers, the intensity of contracts, or sales and profits for processors. The results also indicate that the elasticity of profits with respect to capital is 0.52, which implies that the returns to investing in the food processing industry are relatively high in China.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper 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 6144.
Date of creation: 2008
Date of revision:
Contact details of provider:
Postal: 555 East Wells Street, Suite 1100, Milwaukee, Wisconsin 53202
Phone: (414) 918-3190
Fax: (414) 276-3349
Web page: http://www.aaea.org
More information through EDIRC
Other versions of this item:
- Xiaohua Yu & David Abler & Chao Peng, 2011. "Dancing with the Dragon Heads: Enforcement, Innovations and Efficiency of Contracts between Agricultural Processors and Farmers in China," Courant Research Centre: Poverty, Equity and Growth - Discussion Papers 63, Courant Research Centre PEG.
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Knoeber, Charles R, 1989. "A Real Game of Chicken: Contracts, Tournaments, and the Production of Broilers," Journal of Law, Economics and Organization, Oxford University Press, vol. 5(2), pages 271-92, Fall.
- Klein, Benjamin, 1996. "Why Hold-Ups Occur: The Self-Enforcing Range of Contractual Relationships," Economic Inquiry, Western Economic Association International, vol. 34(3), pages 444-63, July.
- Beckmann, Volker & Boger, Silke, 2004.
"Courts and contract enforcement in transition agriculture: theory and evidence from Poland,"
Blackwell, vol. 31(2-3), pages 251-263, December.
- Beckmann, Volker & Boger, Silke, 2003. "Courts And Contract Enforcement In Transition Agriculture: Theory And Evidence From Poland," 2003 Annual Meeting, August 16-22, 2003, Durban, South Africa 25878, International Association of Agricultural Economists.
- Chow, Gregory C, 1997. "Challenges of China's Economic System for Economic Theory," American Economic Review, American Economic Association, vol. 87(2), pages 321-27, May.
- Amemiya, Takeshi, 1978. "The Estimation of a Simultaneous Equation Generalized Probit Model," Econometrica, Econometric Society, vol. 46(5), pages 1193-1205, September.
- Gow, Hamish R. & Streeter, Deborah H. & Swinnen, Johan F. M., 2000. "How private contract enforcement mechanisms can succeed where public institutions fail: the case of Juhocukor a.s," Agricultural Economics, Blackwell, vol. 23(3), pages 253-265, September.
- Rivers, Douglas & Vuong, Quang H., 1988. "Limited information estimators and exogeneity tests for simultaneous probit models," Journal of Econometrics, Elsevier, vol. 39(3), pages 347-366, November.
- Melkonian, Tigran A., 2004. "Quality Measurement and Contract Design: Evidence from the North American Sugar Beet Industry," Staff General Research Papers 12350, Iowa State University, Department of Economics.
- Gow, Hamish R & Swinnen, Johan F M, 1998. "Up- and Downstream Restructuring, Foreign Direct Investment, and Hold-Up Problems in Agricultural Transition," European Review of Agricultural Economics, Foundation for the European Review of Agricultural Economics, vol. 25(3), pages 331-50.
- Ligon, Ethan, 2002.
"Estimation of an Efficient Tomato Contract,"
Staff General Research Papers
10235, Iowa State University, Department of Economics.
- MacDonald, James M. & Korb, Penelope J., 2006. "Agricultural Contracting Update: Contracts in 2003," Economic Information Bulletin 33903, United States Department of Agriculture, Economic Research Service.
- Klein, Benjamin & Crawford, Robert G & Alchian, Armen A, 1978. "Vertical Integration, Appropriable Rents, and the Competitive Contracting Process," Journal of Law and Economics, University of Chicago Press, vol. 21(2), pages 297-326, October.
- Pan, Chenjun & Kinsey, Jean D., 2002. "The Supply Chain Of Pork: U.S. And China," Working Papers 14300, University of Minnesota, The Food Industry Center.
- Hamish R. Gow & Johan F. M. Swinnen, 2001. "Private Enforcement Capital and Contract Enforcement in Transition Economies," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 83(3), pages 686-690.
- Knoeber, Charles R & Thurman, Walter N, 1994. "Testing the Theory of Tournaments: An Empirical Analysis of Broiler Production," Journal of Labor Economics, University of Chicago Press, vol. 12(2), pages 155-79, April.
- Smith, Richard J & Blundell, Richard W, 1986. "An Exogeneity Test for a Simultaneous Equation Tobit Model with an Application to Labor Supply," Econometrica, Econometric Society, vol. 54(3), pages 679-85, May.
- Newey, Whitney K., 1987. "Efficient estimation of limited dependent variable models with endogenous explanatory variables," Journal of Econometrics, Elsevier, vol. 36(3), pages 231-250, November.
- Key, Nigel & Runsten, David, 1999. "Contract Farming, Smallholders, and Rural Development in Latin America: The Organization of Agroprocessing Firms and the Scale of Outgrower Production," World Development, Elsevier, vol. 27(2), pages 381-401, February.
- Yu, Xiaohua & Abler, David G. & Zeng, Yinchu, 2009. "Contractual Arrangements of Traders in Chinese Wholesale Markets," 2009 Conference, August 16-22, 2009, Beijing, China 51399, International Association of Agricultural Economists.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (AgEcon Search).
If references are entirely missing, you can add them using this form.