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Trust and the Profitability of Rule-Breaking in Grain Production

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  • Hirschauer, Norbert
  • Musshoff, Oliver

Abstract

Malpractice in food production entails unacceptable procedures and undesirable product qualities and other negative material outcomes. Despite their physical implications, behavioural sources of risk have become known as moral hazards. The probability of malpractice increases with attached profits. It decreases with the probability of disclosure and resulting losses. It also decreases with social values, emotional bonds etc. which prevent food producers from yielding to economic temptations. Trust can be generated both by reducing the profitability of malpractice and by enhancing social trust factors. Referring to Hennessy et al. (2003), who conclude that misdirected incentives are a major source of food risk, we focus on the former and analyse the incentives related to various regulations in grain production.

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Bibliographic Info

Paper provided by European Association of Agricultural Economists in its series 99th Seminar, February 8-10, 2006, Bonn, Germany with number 7754.

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Date of creation: 2006
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Handle: RePEc:ags:eaae99:7754

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Keywords: behavioural risk; moral hazard; incentive-compatibility; trust; Crop Production/Industries;

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  1. Fox, John A. & Hennessy, David A., 1999. "Cost-Effective Hazard Control in Food Handling," Staff General Research Papers 1711, Iowa State University, Department of Economics.
  2. Demski, Joel S. & Sappington, David, 1984. "Optimal incentive contracts with multiple agents," Journal of Economic Theory, Elsevier, vol. 33(1), pages 152-171, June.
  3. Hirschauer, Norbert, 2004. "A model-based approach to moral hazard in food chains - What contribution do principal-agent-models make to the understanding of food risks induced by opportunistic behaviour?," German Journal of Agricultural Economics, Humboldt-Universitaet zu Berlin, Department for Agricultural Economics, vol. 53(5).
  4. Stiglitz, Joseph E, 1987. "The Causes and Consequences of the Dependence of Quality on Price," Journal of Economic Literature, American Economic Association, vol. 25(1), pages 1-48, March.
  5. Hennessy, David A. & Roosen, Jutta & Jensen, Helen H., 2003. "Systemic Failure in the Provision of Safe Food," Staff General Research Papers 2091, Iowa State University, Department of Economics.
  6. S. Andrew Starbird, 2005. "Moral Hazard, Inspection Policy, and Food Safety," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 87(1), pages 15-27.
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