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Regulating Broiler Contracts: Tournaments Versus Fixed Performance Standards

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  • Theofanis Tsoulouhas
  • Tomislav Vukina

Abstract

Grower discontent with tournaments as mechanisms for settling poultry contracts can largely be attributed to the group composition risk that tournaments impose on growers. This article focuses on the welfare effects of a widely advocated regulatory proposal to prevent integrator companies from using tournaments and replace them with schemes that compare performance to a fixed standard. The analysis shows that the mandatory replacement of tournaments with fixed performance standards, absent any rules that regulate the magnitude of the piece rate, can decrease grower income insurance without raising welfare. However, replacing tournaments with fixed performance standards can simultaneously increase income insurance and welfare, provided that the magnitude of the piece rate is also regulated. Copyright 2001, Oxford University Press.

Suggested Citation

  • Theofanis Tsoulouhas & Tomislav Vukina, 2001. "Regulating Broiler Contracts: Tournaments Versus Fixed Performance Standards," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 83(4), pages 1062-1073.
    • Handle: RePEc:oup:ajagec:v:83:y:2001:i:4:p:1062-1073
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    1. Lazear, Edward P & Rosen, Sherwin, 1981. "Rank-Order Tournaments as Optimum Labor Contracts," Journal of Political Economy, University of Chicago Press, vol. 89(5), pages 841-864, October.
    2. Tsoulouhas, Theofanis, 1999. "Do tournaments solve the two-sided moral hazard problem?," Journal of Economic Behavior & Organization, Elsevier, vol. 40(3), pages 275-294, November.
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