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Contract Incentives And Excessive Nitrogen Use In Agriculture

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  • Preckel, Paul V.
  • Shively, Gerald E.
  • Baker, Timothy G.
  • Chu, Mei-Chin
  • Burrell, Jessica Eide

Abstract

This study examines incentives for input use under tournament contracts. We analyze implications of contract design for nitrate-based environmental externalities generated by agricultural producers. Outcomes are compared from contracts awarded by tournament to those from fixed-payment contracts. Our findings show contract insecurity can distort input use. The model developed in this analysis is applied to a region of the U.S. where tournament-based production is prevalent and groundwater contamination is a problem. We find contract insecurity increases nitrogen use by about 12%, resulting in a 17% increase in nitrate leaching. Implications for contract modification to reduce environmental externalities while maintaining contract incentives are discussed.

Suggested Citation

  • Preckel, Paul V. & Shively, Gerald E. & Baker, Timothy G. & Chu, Mei-Chin & Burrell, Jessica Eide, 2000. "Contract Incentives And Excessive Nitrogen Use In Agriculture," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 25(02), December.
  • Handle: RePEc:ags:jlaare:30902
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    References listed on IDEAS

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    1. Theofanis Tsoulouhas & Tomislav Vukina, 1999. "Integrator Contracts with Many Agents and Bankruptcy," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 81(1), pages 61-74.
    2. Agrawal, Pradeep, 1999. "Contractual structure in agriculture," Journal of Economic Behavior & Organization, Elsevier, vol. 39(3), pages 293-325, July.
    3. Boehlje, Michael, 1996. "Industrialization of Agriculture: What are the Implications?," Choices, Agricultural and Applied Economics Association, vol. 11(1).
    4. Eswaran, Mukesh & Kotwal, Ashok, 1985. "A Theory of Contractual Structure in Agriculture," American Economic Review, American Economic Association, vol. 75(3), pages 352-367, June.
    5. 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.
    6. Shaw, David J. & Howard, Wayne H. & Martin, Larry J., 1989. "Costs, Prices and Contracts in the U.S. and Seed Corn Industries," Working Papers 244741, University of Guelph, Department of Food, Agricultural and Resource Economics.
    7. Just, Richard E. & Pope, Rulon D., 1978. "Stochastic specification of production functions and economic implications," Journal of Econometrics, Elsevier, vol. 7(1), pages 67-86, February.
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    Cited by:

    1. Agarwal, Sandip Kumar, 2017. "Subjective beliefs and decision making under uncertainty in the field," ISU General Staff Papers 201701010800006248, Iowa State University, Department of Economics.

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    Keywords

    Crop Production/Industries;

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