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Using Both Sociological And Economic Incentives To Reduce Moral Hazard

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  • Richter, Francisca G.-C.
  • Diaz, Edgar F. Pebe
  • Brorsen, B. Wade
  • Currier, Kevin

Abstract

Economists tend to focus on monetary incentives. In the model developed here, both sociological and economic incentives are used to diminish the apparent moral hazard problem existing in commodity grading. Training that promotes graders' response to sociological incentives is shown to increase expected benefits. The model suggests that this training be increased up to the point where the marginal benefit due to training equals its marginal cost. It may be more economical to influence the grader's behavior by creating cognitive dissonance through training and rules rather than by using economic incentives alone.

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File URL: http://purl.umn.edu/35009
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Bibliographic Info

Paper provided by Southern Agricultural Economics Association in its series 2003 Annual Meeting, February 1-5, 2003, Mobile, Alabama with number 35009.

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Date of creation: 2003
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Handle: RePEc:ags:saeatm:35009

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Keywords: Marketing;

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  1. Allen, Douglas W. & Lueck, Dean, 1999. "Searching For Ratchet Effects In Agricultural Contracts," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 24(02), December.
  2. Hennessy, David A. & Wahl, Thomas I., 1997. "Discount Schedules and Grower Incentives in Grain Marketing," Staff General Research Papers 10672, Iowa State University, Department of Economics.
  3. Edward S. Prescott, 1999. "A primer on moral-hazard models," Economic Quarterly, Federal Reserve Bank of Richmond, issue Win, pages 47-78.
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