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Risk and Transactions Cost in Contracting: Results from a Choice-Based Experiment


  • Hudson Darren

    (Mississippi State University)

  • Lusk Jayson

    (Purdue University)


Contracting is a contentious issue in agriculture. Competing theories assert that risk or transactions cost drive contracting decisions, with some argument that autonomy also plays a role. We examine preferences for different contract attributes using a choice-based conjoint experiment. Results of a study of agricultural producers show that both risk and transactions cost play a role in contracting decisions. Autonomy also plays a role, especially to the extent that producers wish to avoid total loss of autonomy. These results suggest that the effects of risk and transactions cost are relative and should both be considered when analyzing contracting decisions.

Suggested Citation

  • Hudson Darren & Lusk Jayson, 2004. "Risk and Transactions Cost in Contracting: Results from a Choice-Based Experiment," Journal of Agricultural & Food Industrial Organization, De Gruyter, vol. 2(1), pages 1-19, February.
  • Handle: RePEc:bpj:bjafio:v:2:y:2004:i:1:n:2

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    References listed on IDEAS

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    Cited by:

    1. Alló, Maria & Igleasias, Eva & Loureiro, Maria L., 2013. "Farmers’ preferences and social capital towards agri-environmental schemes for protecting birds," 2013 Annual Meeting, August 4-6, 2013, Washington, D.C. 150620, Agricultural and Applied Economics Association.
    2. Barrowclough, Michael & Boys, Kathryn A. & Carpio, Carlos, 2015. "An Evaluation of Firm and Contract Characteristics Valued by Supply Chain Partners in Specialty Crop Marketing Channels," 2015 AAEA & WAEA Joint Annual Meeting, July 26-28, San Francisco, California 205768, Agricultural and Applied Economics Association;Western Agricultural Economics Association.
    3. Vassalos, Michael & Hu, Wuyang & Woods, Timothy A. & Schieffer, Jack & Dillon, Carl R., 2013. "Fresh Vegetable Growers' Risk Perception, Risk Preference and Choice of Marketing Contracts: A Choice Experiment," 2013 Annual Meeting, February 2-5, 2013, Orlando, Florida 142506, Southern Agricultural Economics Association.
    4. Vassalos, Michael & Li, Yingbo, 2016. "Assessing the Impact of Fresh Vegetable Growers’ Risk Aversion Levels and Risk Preferences on the Probability of Adopting Marketing Contracts: A Bayesian Approach," International Food and Agribusiness Management Review, International Food and Agribusiness Management Association (IFAMA), vol. 19(1).
    5. Sant'Anna, Ana Claudia & Bergtold, Jason & Caldas, Marcellus & Granco, Gabriel, 2016. "Analyzing sugarcane production contracts in Brazil: What do the farmers really want?," 2016 Annual Meeting, July 31-August 2, 2016, Boston, Massachusetts 235655, Agricultural and Applied Economics Association.
    6. Vedel, Suzanne Elizabeth & Jacobsen, Jette Bredahl & Thorsen, Bo Jellesmark, 2015. "Contracts for afforestation and the role of monitoring for landowners’ willingness to accept," Forest Policy and Economics, Elsevier, vol. 51(C), pages 29-37.
    7. Gaetano Martino & Paolo Polinori, 2011. "Productive process innovation as sequential adjustment of the hybrid governance structure: the case of the poultry sector," Quaderni del Dipartimento di Economia, Finanza e Statistica 88/2011, Università di Perugia, Dipartimento Economia.
    8. Stine Broch & Suzanne Vedel, 2012. "Using Choice Experiments to Investigate the Policy Relevance of Heterogeneity in Farmer Agri-Environmental Contract Preferences," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 51(4), pages 561-581, April.
    9. Vedel, Suzanne Elizabeth & Jacobsen, Jette Bredahl & Thorsen, Bo Jellesmark, 2015. "Forest owners' willingness to accept contracts for ecosystem service provision is sensitive to additionality," Ecological Economics, Elsevier, vol. 113(C), pages 15-24.
    10. Furesi, Roberto & Martino, Gaetano & Pulina, Pietro, 2006. "Contractual Choice and Food Safety Strategy: Some Empirical Findings in Italian Poultry Sector," 99th Seminar, February 8-10, 2006, Bonn, Germany 7715, European Association of Agricultural Economists.
    11. Cardella, Eric & Ewing, Bradley T. & Williams, Ryan B., 2017. "Price volatility and residential electricity decisions: Experimental evidence on the convergence of energy generating source," Energy Economics, Elsevier, vol. 62(C), pages 428-437.
    12. Gaetano Martino & Paolo Polinori, 2007. "Contracting Food Safety Strategies in Hybrid Governance Structures," Quaderni del Dipartimento di Economia, Finanza e Statistica 40/2007, Università di Perugia, Dipartimento Economia.
    13. Villanueva, Anastasio J. & Glenk, Klaus & Rodriguez-Entrena, M., 2016. "Serial non-participation and ecosystem services providers’ preferences towards incentive-based schemes," 90th Annual Conference, April 4-6, 2016, Warwick University, Coventry, UK 236348, Agricultural Economics Society.
    14. repec:bla:jageco:v:68:y:2017:i:3:p:801-821 is not listed on IDEAS
    15. Neill, Clinton L. & Mitchell, Donna M. & Williams, Ryan B., 2014. "A look at the variations in consumer preferences for farmers' markets attributes," 2014 Annual Meeting, February 1-4, 2014, Dallas, Texas 162445, Southern Agricultural Economics Association.
    16. Darren Hudson & Karina Gallardo & Terry Hanson, 2005. "Hypothetical (Non)Bias In Choice Experiments: Evidence From Freshwater Prawns," Experimental 0503003, EconWPA.
    17. Escobal, Javier A. & Cavero, Denice, 2012. "Transaction Costs, Institutional Arrangements and Inequality Outcomes: Potato Marketing by Small Producers in Rural Peru," World Development, Elsevier, vol. 40(2), pages 329-341.
    18. Rabotyagov, Sergey S. & Lin, Sonja, 2013. "Small forest landowner preferences for working forest conservation contract attributes: A case of Washington State, USA," Journal of Forest Economics, Elsevier, vol. 19(3), pages 307-330.
    19. David R Stead, "undated". "Fixed Rent Contracts in English Agriculture, 1750-1850: A Conjecture," Discussion Papers 05/01, Department of Economics, University of York.
    20. Jamal, Erizal & Dewi, Yovita Anggita, 2. "Technical Efficiency of Land Tenure Contracts in West Java Province, Indonesia," Asian Journal of Agriculture and Development, Southeast Asian Regional Center for Graduate Study and Research in Agriculture (SEARCA), vol. 6(2).
    21. repec:sag:seajad:v:6:y:2009:i:2:p:21-34 is not listed on IDEAS
    22. Kipperberg, Gorm & Bond, Craig A. & Hoag, Dana L., 2008. "An Application of Mixed Logit Estimation in the Analysis of Producers’ Stated Preferences," Working Papers 108719, Colorado State University, Department of Agricultural and Resource Economics.
    23. Banerjee, Swagata (Ban) & Martin, Steven W. & Hudson, Darren, 2006. "A Choice-Based Conjoint Experiment with Genetically Engineered Cotton in the Mississippi Delta," 2006 Annual Meeting, February 5-8, 2006, Orlando, Florida 35389, Southern Agricultural Economics Association.

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