The objective of this paper is to develop an analytical framework for estimation of the parameters of a structural model of an incentive contract under moral hazard, taking into account agents heterogeneity in preferences. We show that allowing the principal to strategically distribute the production inputs across heterogenous agents as part of the contract design, the principal is able to change what appears to be a uniform contract into individualized contracts tailored to fit agents' preferences or characteristics. Using micro level data on swine production contract settlements, we find that contracting farmers are heterogenous with respect to their risk aversion and that this heterogeneity affects the principal's allocation of production inputs across farmers. Relying on the identifying assumption that contracts are optimal, we obtain the estimates of a lower and an upper bound of agents' reservation utilities. We show that farmers with higher risk aversion have lower outside opportunities because of lower reservation utilities. ...French Abstract : L'objectif de cet article est de développer un cadre analytique pour l'estimation des paramètres d'un modèle structurel de contrat incitatif sous aléa moral prenant en compte l'hétérogénéité des préférences des agents. Les auteurs montrent qu'en permettant au principal d'allouer stratégiquement les inputs de production entre agents hétérogènes dans le choix du contrat, le principal est capable de transformer des contrats apparemment uniformes en contrats individuels paramétrés en fonction des préférences des agents ou de leurs caractéristiques. En utilisant des données microéconomiques sur la production porcine aux Etats-Unis, on s'aperçoit que les fermiers qui contractent sont hétérogènes vis à vis de leur aversion au risque et que cette hétérogénéité affecte l'allocation des inputs du principal entre les fermiers. En utilisant l'hypothèse identifiante que les contrats sont optimaux, on obtient une borne supérieure et une borne inférieure de l'utilité de réserve des agents. Les auteurs montrent que les fermiers les plus averses au risque ont aussi les utilités de réserve les plus faibles.
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Paper provided by French Institute for Agronomy Research (INRA), Economics Laboratory in Toulouse (ESR Toulouse) in its series Economics Working Paper Archive (Toulouse) with number
200511.
Find related papers by JEL classification: D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information L24 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Contracting Out; Joint Ventures Q12 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Micro Analysis of Farm Firms, Farm Households, and Farm Input Markets K32 - Law and Economics - - Other Substantive Areas of Law - - - Environmental, Health, and Safety Law L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
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