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Food Quality: The Design of Incentive Contracts

Author

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  • Rachael E. Goodhue

    () (Department of Agricultural and Resource Economics, University of California, Davis, California 95616)

Abstract

Quality considerations are increasingly important drivers of production and coordination choices for players in the agrofood chain. Incentive contracts between farmers and processors, shippers, and other buyers are an increasingly popular means of coordinating to improve food quality. This review examines the economic literature regarding incentive contracts and the provision of food quality, with a focus on empirical analyses. Studies of specific value chains find that a desire for higher quality or specific quality attributes increases the likelihood that a contract, rather than the spot market, is used. Consistent with economic theory, studies regarding the selection of contract provisions find that financial incentives are used when an attribute is easily observable at the time of sale, whereas requirements for specific inputs and actions tend to be used when an attribute is not easily observable.

Suggested Citation

  • Rachael E. Goodhue, 2011. "Food Quality: The Design of Incentive Contracts," Annual Review of Resource Economics, Annual Reviews, vol. 3(1), pages 119-140, October.
  • Handle: RePEc:anr:reseco:v:3:y:2011:p:119-140
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    File URL: http://www.annualreviews.org/doi/abs/10.1146/annurev-resource-040709-135037
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    Citations

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    Cited by:

    1. 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.
    2. Mahdi, Shireen, 2012. "Quality contingent contracts : evidence from Tanzania's coffee market," Policy Research Working Paper Series 6171, The World Bank.
    3. repec:kap:jincot:v:18:y:2018:i:1:d:10.1007_s10842-017-0247-2 is not listed on IDEAS
    4. Hussein, Mohamud & Martinez, Marian Garcia & Fearne, Andrew, 2013. "On The Efficiency of Management-Based Regulation: A Case Study of the UK Poultry Inspection Regime," 87th Annual Conference, April 8-10, 2013, Warwick University, Coventry, UK 158856, Agricultural Economics Society.
    5. Russo, Carlo & Perito, Maria Angela & Di Fonzo, Antonella, 2014. "Using Private Food Safety Standards to Manage Complexity: A Moral Hazard Perspective," Agricultural Economics Review, Greek Association of Agricultural Economists, vol. 15(2), June.
    6. Anderson, Kym, 2013. "Is Georgia the Next “New” Wine-Exporting Country?," Journal of Wine Economics, Cambridge University Press, vol. 8(01), pages 1-28, May.
    7. Abebe, Gumataw K. & Bijman, Jos & Kemp, Ron & Omta, Onno & Tsegaye, Admasu, 2013. "Contract farming configuration: Smallholders’ preferences for contract design attributes," Food Policy, Elsevier, vol. 40(C), pages 14-24.

    More about this item

    Keywords

    agricultural industrialization; asymmetric information; product differentiation; transaction cost economics; value differentiation; vertical coordination;

    JEL classification:

    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
    • L66 - Industrial Organization - - Industry Studies: Manufacturing - - - Food; Beverages; Cosmetics; Tobacco
    • Q13 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agricultural Markets and Marketing; Cooperatives; Agribusiness

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