IDEAS home Printed from https://ideas.repec.org/a/ags/jlaare/246172.html
   My bibliography  Save this article

Relational Contracts and Product Quality: The Effect of Bargaining Power on Efficiency and Distribution

Author

Listed:
  • Cordero Salas, Paula

Abstract

This paper studies how changes in bargaining power alter the surplus distribution and sustainability of incomplete agricultural contracts. When an enforceable payment exists, selfenforcement is always sustainable, the highest quality is traded, and any surplus distribution is possible. However, there is a limit to how much bargaining power can be exercised when contracts are fully incomplete, as a seller cannot extract too much of the surplus without breaking down the trading relationship. The results provide insight into the limits of policies that attempt to redistribute bargaining power in markets having informal institutions or in which parties rely on implicit contracts.

Suggested Citation

  • Cordero Salas, Paula, 2016. "Relational Contracts and Product Quality: The Effect of Bargaining Power on Efficiency and Distribution," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 41(3), pages 1-19.
    • Handle: RePEc:ags:jlaare:246172
    DOI: 10.22004/ag.econ.246172
    as

    Download full text from publisher

    File URL: https://ageconsearch.umn.edu/record/246172/files/JARE_September2016__4_CorderoSalas_406-424.pdf
    Download Restriction: no
    File URL: https://libkey.io/10.22004/ag.econ.246172?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Wu, Steven Y., 2006. "Contract theory and agricultural policy analysis: a discussion and survey of recent developments," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 50(4), pages 1-20, December.
    2. Jonathan Levin, 2003. "Relational Incentive Contracts," American Economic Review, American Economic Association, vol. 93(3), pages 835-857, June.
    3. Ken Binmore & Ariel Rubinstein & Asher Wolinsky, 1986. "The Nash Bargaining Solution in Economic Modelling," RAND Journal of Economics, The RAND Corporation, vol. 17(2), pages 176-188, Summer.
    4. Muthoo,Abhinay, 1999. "Bargaining Theory with Applications," Cambridge Books, Cambridge University Press, number 9780521576475, October.
    5. Drew Fudenberg & David Levine & Eric Maskin, 2008. "The Folk Theorem With Imperfect Public Information," World Scientific Book Chapters, in: Drew Fudenberg & David K Levine (ed.), A Long-Run Collaboration On Long-Run Games, chapter 12, pages 231-273, World Scientific Publishing Co. Pte. Ltd..
    6. Brent Hueth & Ethan Ligon & Steven Wolf & Steven Wu, 1999. "Incentive Instruments in Fruit and Vegetable Contracts: Input Control, Monitoring, Measuring, and Price Risk," Review of Agricultural Economics, Agricultural and Applied Economics Association, vol. 21(2), pages 374-389.
    7. Robert J. Myers & Richard J. Sexton & William G. Tomek, 2010. "A Century of Research on Agricultural Markets," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 92(2), pages 376-403.
    8. Rachael E. Goodhue, 2000. "Broiler Production Contracts as a Multi-Agent Problem: Common Risk, Incentives and Heterogeneity," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 82(3), pages 606-622.
    9. Richard J. Sexton, 1986. "The Formation of Cooperatives: A Game-Theoretic Approach with Implications for Cooperative Finance, Decision Making, and Stability," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 68(2), pages 214-225.
    10. Peter Helmberger & Sidney Hoos, 1962. "Cooperative Enterprise and Organization Theory," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 44(2), pages 275-290.
    11. Singh, Sukhpal, 2002. "Contracting Out Solutions: Political Economy of Contract Farming in the Indian Punjab," 2002 ASAE 3rd International Conference, October 18-20, Jaipur, India 294714, Asian Society of Agricultural Economists (ASAE).
    12. Peter G. Helmberger, 1964. "Cooperative Enterprise as a Structural Dimension of Farm Markets," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 46(3), pages 603-617.
    13. Theofanis Tsoulouhas & Tomislav Vukina, 2001. "Regulating Broiler Contracts: Tournaments Versus Fixed Performance Standards," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 83(4), pages 1062-1073.
    14. Thomas Worley & Raymond Folwell & John Foltz & Andrew Jaqua, 2000. "Management of a Cooperative Bargaining Association: A Case in the Pacific Northwest Asparagus Industry," Review of Agricultural Economics, Agricultural and Applied Economics Association, vol. 22(2), pages 548-565.
    15. Murray Fulton & Konstantinos Giannakas, 2001. "Organizational Commitment in a Mixed Oligopoly: Agricultural Cooperatives and Investor-Owned Firms," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 83(5), pages 1258-1265.
    16. Porametr Leegomonchai & Tomislav Vukina, 2005. "Dynamic Incentives and Agent Discrimination in Broiler Production Tournaments," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 14(4), pages 849-877, December.
    17. Wu, Steven Y., 2003. "Regulating Agricultural Contracts: What are the Tradeoffs?," Choices: The Magazine of Food, Farm, and Resource Issues, Agricultural and Applied Economics Association, vol. 18(1), pages 1-4.
    18. John M. Crespi & Tina L. Saitone & Richard J. Sexton, 2012. "Competition in U.S. Farm Product Markets: Do Long-Run Incentives Trump Short-Run Market Power?," Applied Economic Perspectives and Policy, Agricultural and Applied Economics Association, vol. 34(4), pages 669-695.
    19. Charles R. Knoeber & Walter N. Thurman, 1995. ""Don't Count Your Chickens...": Risk and Risk Shifting in the Broiler Industry," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 77(3), pages 486-496.
    20. Clive Bull, 1987. "The Existence of Self-Enforcing Implicit Contracts," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 102(1), pages 147-159.
    21. Iskow, Julie & Sexton, Richard, 1992. "Bargaining Associations in Grower-Processor Markets for Fruits and Vegetables," Research Reports 279811, United States Department of Agriculture, Rural Development.
    22. George Baker & Robert Gibbons & Kevin J. Murphy, 1994. "Subjective Performance Measures in Optimal Incentive Contracts," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 109(4), pages 1125-1156.
    23. Lee, Myoungki & Wu, Steven Y. & Fan, Maoyong, 2008. "Balancing Grower Protection Against Agency Concerns: An Economic Analysis of Contract Termination Damages," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 33(2), pages 1-15.
    24. Bell, Clive & Zusman, Pinhas, 1976. "A Bargaining Theoretic Approach to Cropsharing Contracts," American Economic Review, American Economic Association, vol. 66(4), pages 578-588, September.
    25. Roman Inderst, 2003. "Alternating-offer bargaining over menus under incomplete information," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 22(2), pages 419-429, September.
    26. Singh, Sukhpal, 2002. "Contracting Out Solutions: Political Economy of Contract Farming in the Indian Punjab," World Development, Elsevier, vol. 30(9), pages 1621-1638, September.
    27. Sen, Arijit, 2000. "Multidimensional Bargaining under Asymmetric Information," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 41(2), pages 425-450, May.
    28. Love, H. Alan & Burton, Diana M., 1999. "A Strategic Rationale For Captive Supplies," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 24(1), pages 1-18, July.
    29. Steven Y. Wu, 2006. "Contract theory and agricultural policy analysis: a discussion and survey of recent developments ," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 50(4), pages 490-509, December.
    30. Brent Hueth & Ethan Ligon, 1999. "Agricultural Supply Response Under Contract," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 81(3), pages 610-615.
    31. 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(2), pages 1-17, December.
    32. David A. Miller & Joel Watson, 2013. "A Theory of Disagreement in Repeated Games With Bargaining," Econometrica, Econometric Society, vol. 81(6), pages 2303-2350, November.
    33. John M. Staatz, 1983. "The Cooperative as a Coalition: A Game-Theoretic Approach," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 65(5), pages 1084-1089.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Brorsen B. Wade & Fain James R. & Maples Joshua G., 2018. "Alternative Policy Responses to Increased Use of Formula Pricing," Journal of Agricultural & Food Industrial Organization, De Gruyter, vol. 16(1), pages 1-11, January.
    2. He Yiming & Luo Biliang & Zou Baoling, 2018. "Do Heterogeneous Agricultural Factors Affect Farmland Contractual Choice?—Evidence from China," Man and the Economy, De Gruyter, vol. 5(1), pages 1-12, June.
    3. Di Corato, Luca & Brady, Mark V., 2019. "Passive farming and land development: A real options approach," Land Use Policy, Elsevier, vol. 80(C), pages 32-46.
    4. Vergamini, Daniele & Bartolini, Fabio & Brunori, Gianluca & Prosperi, Paolo & Genovesi, Simone, 2017. "A search theory model for the Buy Wine matchmaking algorithm in Tuscany," 91st Annual Conference, April 24-26, 2017, Royal Dublin Society, Dublin, Ireland 258623, Agricultural Economics Society.
    5. Luca Camanzi & Giorgia Bartoli & Beatrice Biondi & Giulio Malorgio, 2018. "A Structural-Functional Theory approach to vertical coordination in agri-food supply chains: Insights from the "Gran Suino Italiano" Inter-branch Organisation," Economia agro-alimentare, FrancoAngeli Editore, vol. 20(2), pages 169-180.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Steven Y. Wu, 2014. "Adapting Contract Theory to Fit Contract Farming," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 96(5), pages 1241-1256.
    2. Wu, Steven Y., 2013. "Adapting Contract Theory to Fit Contract Farming," 2014 Allied Social Sciences Association (ASSA) Annual Meeting, January 3-5, 2014, Philadelphia, PA 161894, Agricultural and Applied Economics Association.
    3. Goodrich, Brittney K. & Goodhue, Rachael E., 2020. "Are All Colonies Created Equal? The Role of Honey Bee Colony Strength in Almond Pollination Contracts," Ecological Economics, Elsevier, vol. 177(C).
    4. Salas, Paula Cordero, 2012. "Does Contract Enforcement Limit the Distribution of Bargaining Power? An Experimental Study," 2012 Annual Meeting, August 12-14, 2012, Seattle, Washington 124503, Agricultural and Applied Economics Association.
    5. Fraser, Iain, 2005. "Microeconometric analysis of wine grape supply contracts in Australia," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 49(1), pages 1-24.
    6. Rachael Goodhue & Leo Simon, 2016. "Agricultural contracts, adverse selection, and multiple inputs," Agricultural and Food Economics, Springer;Italian Society of Agricultural Economics (SIDEA), vol. 4(1), pages 1-33, December.
    7. 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).
    8. Michael D. Ryall & Rachelle C. Sampson, 2009. "Formal Contracts in the Presence of Relational Enforcement Mechanisms: Evidence from Technology Development Projects," Management Science, INFORMS, vol. 55(6), pages 906-925, June.
    9. Zhao, Rui R., 2012. "Renegotiation and conflict resolution in relational contracting," Games and Economic Behavior, Elsevier, vol. 75(2), pages 964-983.
    10. Marco A. MARINI & Paolo POLIDORI & Desiree TEOBALDELLI & Alberto ZEVI, 2015. "Welfare Enhancing Coordination In Consumer Cooperatives Under Mixed Oligopoly," Annals of Public and Cooperative Economics, Wiley Blackwell, vol. 86(3), pages 505-527, September.
    11. Joel Watson & David A. Miller & Trond E. Olsen, 2020. "Relational Contracting, Negotiation, and External Enforcement," American Economic Review, American Economic Association, vol. 110(7), pages 2153-2197, July.
    12. Joel Watson, 2013. "Contract and Game Theory: Basic Concepts for Settings with Finite Horizons," Games, MDPI, vol. 4(3), pages 1-40, August.
    13. De Chiara, Alessandro, 2020. "Precontractual investment and modes of procurement," European Economic Review, Elsevier, vol. 124(C).
    14. Marina Halac, 2015. "Investing in a relationship," RAND Journal of Economics, RAND Corporation, vol. 46(1), pages 165-185, March.
    15. Petraglia, Lisa M. & Rogers, Richard T., 1991. "The Impact of Agricultural Marketing Cooperatives on Market Performance in U.S. Food Manufacturing Industries for 1982," Research Reports 25175, University of Connecticut, Food Marketing Policy Center.
    16. Zhao, Rui R., 2009. "Productive low morale," Economics Letters, Elsevier, vol. 103(1), pages 18-22, April.
    17. Joel Watson, 2021. "Theoretical Foundations of Relational Incentive Contracts," Annual Review of Economics, Annual Reviews, vol. 13(1), pages 631-659, August.
    18. Gary-Bobo, Robert J. & Jaaidane, Touria, 2014. "Strikes and slowdown in a theory of relational contracts," European Journal of Political Economy, Elsevier, vol. 36(C), pages 89-116.
    19. Tian Xia & John M. Crespi & Kevin C. Dhuyvetter, 2019. "Could packers manipulate spot markets by tying contracts to futures prices? And do they?," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 67(1), pages 85-102, March.
    20. Luis Rayo, 2002. "Relational Team Incentives and Ownership," Theory workshop papers 357966000000000087, UCLA Department of Economics.

    More about this item

    Keywords

    Agricultural and Food Policy;

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ags:jlaare:246172. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: AgEcon Search (email available below). General contact details of provider: https://edirc.repec.org/data/waeaaea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.