Contract Incentives And Excessive Nitrogen Use In Agriculture
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.
Volume (Year): 25 (2000)
Issue (Month): 02 (December)
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- 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.
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- 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.
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- Agrawal, Pradeep, 1999. "Contractual structure in agriculture," Journal of Economic Behavior & Organization, Elsevier, vol. 39(3), pages 293-325, July.
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