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Sorting into Contests: Evidence from Production Contracts

Author

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  • Wang Zhen

    (The Brattle Group, San Francisco, CA, USA)

  • Vukina Tomislav

    (North Carolina State University, Raleigh, NC, USA)

Abstract

In this paper, we investigate sorting patterns among chicken producers who are offered a menu of contracts to choose from. We show that the sorting equilibrium reveals a positive sorting where higher ability producers self-select themselves into contracts to grow larger chickens and lower ability types self-select themselves into contracts to grow smaller birds. We also show that eliciting this type of sorting behavior is profit maximizing for the principal. In the empirical part of the paper, we first estimate growers’ abilities using a two-way fixed effects model and subsequently use these estimated abilities to estimate a random utility model of contract choice. Our empirical results are supportive of the developed theory.

Suggested Citation

  • Wang Zhen & Vukina Tomislav, 2019. "Sorting into Contests: Evidence from Production Contracts," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 19(1), pages 1-15, January.
    • Handle: RePEc:bpj:bejeap:v:19:y:2019:i:1:p:15:n:5
    DOI: 10.1515/bejeap-2018-0049
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    References listed on IDEAS

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    2. Thomas Dohmen & Armin Falk, 2011. "Performance Pay and Multidimensional Sorting: Productivity, Preferences, and Gender," American Economic Review, American Economic Association, vol. 101(2), pages 556-590, April.
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    1. Stephen F. Hamilton & David L. Sunding, 2021. "Joint Oligopsony‐Oligopoly Power in Food Processing Industries: Application to the us Broiler Industry," American Journal of Agricultural Economics, John Wiley & Sons, vol. 103(4), pages 1398-1413, August.

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    Keywords

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    JEL classification:

    • M52 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects
    • J43 - Labor and Demographic Economics - - Particular Labor Markets - - - Agricultural Labor Markets
    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law

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