Double Sided Moral Hazard and Share Contracts in agriculture
AbstractThis paper develops a double-sided moral hazard model of share contract in agriculture, with imperfect quality measurement by the agent and the principal, who contribute to the final good quality in terms of production effort and marketing effort respectively. Using this model, we analyse the implications of the share contract for quantity and quality, often ignored in previous analysis. With the help of a simulation exercise, we prove that the outcome-conditioned share generally weakens the agent´s incentive to make effort in quality input. This finding could explain the contractual evidence in some differentiated markets such as the wine market, where bottle-price conditioned contracts are rarely used.
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Bibliographic InfoPaper provided by European Association of Agricultural Economists in its series 2008 International Congress, August 26-29, 2008, Ghent, Belgium with number 43863.
Date of creation: 2008
Date of revision:
share-contract; double moral-hazard; quality; Farm Management;
This paper has been announced in the following NEP Reports:
- NEP-ALL-2008-11-25 (All new papers)
- NEP-BEC-2008-11-25 (Business Economics)
- NEP-CTA-2008-11-25 (Contract Theory & Applications)
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