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Simulating the Impacts of Contract Supplies in a Spot Market-Contract Market Equilibrium Setting

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  • Yanguo Wang
  • Edward C. Jaenicke

Abstract

This article embeds a principal-agent model within a market equilibrium model of contract and cash markets to analyze the impact of contracting on the spot market for hogs. The equilibrium model incorporates both quality differentiation in the contract market and an endogenously determined cash market price. For three types of contracting scenarios, market equilibrium conditions are derived, and results are presented for a numerical example. Contrary to some empirical results, our model shows that the increased supply of hogs under typical formula-price contracts can increase or decrease the cash market price, depending on the relative size of overall contract supplies. Copyright 2006, Oxford University Press.

Suggested Citation

  • Yanguo Wang & Edward C. Jaenicke, 2006. "Simulating the Impacts of Contract Supplies in a Spot Market-Contract Market Equilibrium Setting," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 88(4), pages 1062-1077.
    • Handle: RePEc:oup:ajagec:v:88:y:2006:i:4:p:1062-1077
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    File URL: http://hdl.handle.net/10.1111/j.1467-8276.2006.00916.x
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    Cited by:

    1. Katchova, Ani L., 2010. "Agricultural Contracts and Alternative Marketing Options: A Matching Analysis," Journal of Agricultural and Applied Economics, Cambridge University Press, vol. 42(2), pages 261-276, May.
    2. Key Nigel, 2011. "Does the Prevalence of Contract Hog Production Influence the Price Received by Independent Hog Producers?," Journal of Agricultural & Food Industrial Organization, De Gruyter, vol. 9(1), pages 1-26, May.
    3. Katchova, Ani L., 2013. "Agricultural Contracting and Agrifood Competition," Staff Papers 164515, University of Kentucky, Department of Agricultural Economics.
    4. Hueth, Brent & Ligon, Ethan & Dimitri, Carolyn, 2007. "AJAE Appendix: Agricultural Contracts: Data and Research Needs," American Journal of Agricultural Economics APPENDICES, Agricultural and Applied Economics Association, vol. 89(5), pages 1-7, December.
    5. Liang, Jing & Jensen, Helen H., 2008. "Marketing Agreement, Food Safety and Contract Design," 2008 Annual Meeting, July 27-29, 2008, Orlando, Florida 6434, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    6. Felicetta Carillo & Francesco Caracciolo & Luigi Cembalo, 2017. "Do durum wheat producers benefit of vertical coordination?," Agricultural and Food Economics, Springer;Italian Society of Agricultural Economics (SIDEA), vol. 5(1), pages 1-13, December.
    7. Kim, Jong-Jin & Zheng, Xiaoyong, 2015. "Effects of Alternative Marketing Arrangements on the Spot Market Price Distribution in the U.S. Hog Market," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 40(2), pages 1-24, May.
    8. Jang, Jongick & Sykuta, Michael E., 2008. "Contracting for Consistency: Hog Quality and the Use of Marketing Contracts," 2008 Annual Meeting, July 27-29, 2008, Orlando, Florida 5966, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).

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