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Estimation of an Efficient Tomato Contract

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  • Ligon, Ethan

Abstract

This paper estimates an agency model of contracts used in California's processing-tomato industry. Model estimation proceeds in three stages. We first estimate growers' stochastic production possibilities, and then, for a given vector of preference parameters, compute an optimal compensation schedule. Finally, we compare computed compensations with actual compensations and choose preference parameters to minimize distance between the two. Assuming perfect competition and risk neutrality for processors, we obtain an estimate of 0.08 for growers' measure of constant absolute risk aversion, and find that growers who face higher powered incentives produce higher levels of soluble solids, at a cost which is 1.8% greater than it would be otherwise. Efficiency losses from information constraints are estimated at 0.59% of mean compensation, while existing quality measurement improves efficiency by 1.08\.

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Bibliographic Info

Paper provided by Iowa State University, Department of Economics in its series Staff General Research Papers with number 10235.

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Date of creation: 01 Jan 2002
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Publication status: Published in European Review of Agricultural Economics 2002, vol. 29 no. 2, pp. 237-253
Handle: RePEc:isu:genres:10235

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Postal: Iowa State University, Dept. of Economics, 260 Heady Hall, Ames, IA 50011-1070
Phone: +1 515.294.6741
Fax: +1 515.294.0221
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Web page: http://www.econ.iastate.edu
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Cited by:
  1. Olmos, Marta Fernandez & Rosell-Martinez, Jorge & Espitia-Escuer, Manuel Antonio, 2008. "The yield/quality trade-off and contractual choice," 2008 Annual Meeting, July 27-29, 2008, Orlando, Florida 6065, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
  2. Vassalos, Michael & Hu, Wuyang & Woods, Timothy A. & Schieffer, Jack & Dillon, Carl R., 2013. "Fresh Vegetable Growers' Risk Perception, Risk Preference and Choice of Marketing Contracts: A Choice Experiment," 2013 Annual Meeting, February 2-5, 2013, Orlando, Florida 142506, Southern Agricultural Economics Association.
  3. Just, David R. & Wu, Steve, 2005. "Loss Aversion and Reference Points in Contracts," Working Papers 127073, Cornell University, Department of Applied Economics and Management.
  4. Du, Xiaoxue & Lu, Liang & Zilberman, David, 2013. "The Economics of Contract Farming: A Credit and Investment Perspective," 2014 Allied Social Science Association (ASSA) Annual Meeting, January 3-5, 2014, Philadelphia, PA 161657, Agricultural and Applied Economics Association.
  5. Hueth, Brent & Ligon, Ethan, 2003. "On the Efficacy of Contractual Provisions for Processing Tomatoes," 2003 Annual meeting, July 27-30, Montreal, Canada 21990, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
  6. Yu, Xiaohua & Abler, David G. & Peng, Chao, 2008. "Dancing with the Dragon Heads: Enforcement, Innovations and Efficiency of Contracts between Agricultural Processors and Farmers in China," 2008 Annual Meeting, July 27-29, 2008, Orlando, Florida 6144, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
  7. Rachael E. Goodhue & Dale M. Heien & Hyunok Lee & Daniel A. Sumner, 2003. "Contracts and Quality in the California Winegrape Industry," Review of Industrial Organization, Springer, vol. 23(3_4), pages 267-282, December.
  8. Hueth, Brent & Ligon, Ethan & Melkonyan, Tigran A., 2008. "Interactions between Explicit and Implicit Contracting: Evidence from California Agriculture," 2008 Annual Meeting, July 27-29, 2008, Orlando, Florida 6068, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
  9. Mussell, Al, 2003. "PRICE DISCOVERY MECHANISMS AND ALTERNATIVES FOR CANADIAN AGRICULTURE; Part II: A Review of Pricing Mechanisms from the Economic Literature," Miscellaneous Publications 18100, George Morris Center.
  10. repec:ags:aaea13:150001 is not listed on IDEAS
  11. Jano, Pilar & Hueth, Brent, 2013. "Quality Incentives in Informal Markets: The Case of Ecuadorian Cocoa," 2013 Annual Meeting, August 4-6, 2013, Washington, D.C. 150378, Agricultural and Applied Economics Association.
  12. Olmos, Marta Fernandez & Rosell-Martinez, Jorge & Espitia-Escuer, Manuel Antonio, 2008. "On the co-existence of spot and contract markets: an analysis of quality," 2008 Annual Meeting, July 27-29, 2008, Orlando, Florida 6082, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
  13. Liang, Jing & Jensen, Helen H., 2008. "Marketing Agreement, Food Safety and Contract Design," 2008 Annual Meeting, July 27-29, 2008, Orlando, Florida 6434, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).

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