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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(2), pages 1-17, December.
    • Handle: RePEc:ags:jlaare:30902
    DOI: 10.22004/ag.econ.30902
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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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