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Relational contracts and adaptation: application to a pork producer contract

  • Kostas Karantininis

    (Institute of Food and Resource Economics (FØI), Faculty of Life Sciences (LIFE), University of Copenhagen (KU), Denmark)

  • Jesper T. Graversen

    (Institute of Food and Resource Economics (FØI), Faculty of Life Sciences (LIFE), University of Copenhagen (KU), Denmark)

In this article, we apply a formal theoretical model of adaptation to an empirical setting within specialized pig production. The objective is to allocate decision rights ex ante so that actual decisions taken ex post will optimize the profit accruing to both parties in a contractual or integrative relation. Motivated by the situation in the market for piglets in Denmark, we focus on an analysis of a vertical partnership between a piglet producer and a finisher. By applying a model of adaptation to the particular setting, we provide a solid basis for discussions on both the importance of efficiently allocating decision rights and the usefulness of the partnership as organizational form between specialized pig producers. © 2008 Wiley Periodicals, Inc.

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File URL: http://hdl.handle.net/10.1002/agr.20162
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Article provided by John Wiley & Sons, Ltd. in its journal Agribusiness.

Volume (Year): 24 (2008)
Issue (Month): 3 ()
Pages: 342-354

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Handle: RePEc:wly:agribz:v:24:y:2008:i:3:p:342-354
Contact details of provider: Web page: http://onlinelibrary.wiley.com/journal/10.1002/(ISSN)1520-6297

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  1. Jonathan Levin, 2003. "Relational Incentive Contracts," American Economic Review, American Economic Association, vol. 93(3), pages 835-857, June.
  2. Hart, Oliver & Moore, John, 1990. "Property Rights and the Nature of the Firm," Journal of Political Economy, University of Chicago Press, vol. 98(6), pages 1119-58, December.
  3. Grossman, Sanford J & Hart, Oliver, 1985. "The Cost and Benefits of Ownership: A Theory of Vertical and Lateral Integration," CEPR Discussion Papers 70, C.E.P.R. Discussion Papers.
  4. Gibbons, Robert, 2005. "Four forma(lizable) theories of the firm?," Journal of Economic Behavior & Organization, Elsevier, vol. 58(2), pages 200-245, October.
  5. Tomislav Vukina & Porametr Leegomonchai, 2006. "Oligopsony Power, Asset Specificity, and Hold-Up: Evidence from the Broiler Industry," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 88(3), pages 589-605.
  6. George Baker & Robert Gibbons & Kevin J. Murphy, 2002. "Relational Contracts And The Theory Of The Firm," The Quarterly Journal of Economics, MIT Press, vol. 117(1), pages 39-84, February.
  7. Michael D. Whinston, 2003. "On the Transaction Cost Determinants of Vertical Integration," Journal of Law, Economics and Organization, Oxford University Press, vol. 19(1), pages 1-23, April.
  8. Jeffrey J. Reimer, 2006. "Vertical Integration in the Pork Industry," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 88(1), pages 234-248.
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