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Quality contingent contracts : evidence from Tanzania's coffee market

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  • Mahdi, Shireen

Abstract

The literature on product quality in markets where product attributes are not readily observable indicates that information asymmetries and incentive problems may lead to the under-provision of quality. This paper contributes to this literature by estimating the effects of village-level contractual arrangements on producer incomes and on quality enhancing production practices. Three contract types are studied: spot contracts, contingent contracts with product grading and contingent contracts without product grading. To do this, the study uses original data from a survey of 450 coffee producers in Tanzania's coffee market that take advantage of contractual variation in the Kilimanjaro region. The results indicate that coffee contracts that include village-based product grading have a large positive effect on producer incomes, and that the grading effect is associated with production practices that enhance quality. The results also indicate that cooperative membership has no significant effect on producer incomes.

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Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 6171.

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Date of creation: 01 Aug 2012
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Handle: RePEc:wbk:wbrwps:6171

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Keywords: Crops&Crop Management Systems; Debt Markets; Markets and Market Access; Labor Policies; E-Business;

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  1. Winter-Nelson, Alex & Temu, Anna, 2002. "Institutional Adjustment and Transaction Costs: Product and Inputs Markets in the Tanzanian Coffee System," World Development, Elsevier, vol. 30(4), pages 561-574, April.
  2. Alexander, Corinne E. & Goodhue, Rachael E. & Rausser, Gordon C., 2007. "Do Incentives For Quality Matter?," Journal of Agricultural and Applied Economics, Southern Agricultural Economics Association, vol. 39(01), April.
  3. Rachael E. Goodhue & Sandeep Mohapatra & Gordon C. Rausser, 2010. "Interactions Between Incentive Instruments: Contracts and Quality in Processing Tomatoes," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 92(5), pages 1283-1293.
  4. Steven Wu & Brian Roe, 2005. "Behavioral and Welfare Effects of Tournaments and Fixed Performance Contracts: Some Experimental Evidence," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 87(1), pages 130-146.
  5. Miyata, Sachiko & Minot, Nicholas & Hu, Dinghuan, 2007. "Impact of contract farming on income: Linking small farmers, packers, and supermarket in China," IFPRI discussion papers 742, International Food Policy Research Institute (IFPRI).
  6. Saenger, Christoph & Qaim, Matin & Torero, Maximo & Viceisza, Angelino, 2012. "Contract farming and smallholder incentives to produce high quality: experimental evidence from the Vietnamese dairy sector," Discussion Papers 122614, Georg-August-Universitaet Goettingen, GlobalFood, Department of Agricultural Economics and Rural Development.
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