IDEAS home Printed from https://ideas.repec.org/p/ags/aaea01/20560.html

Estimation Of An Optimal Tomato Contract

Author

Listed:
  • Hueth, Brent
  • Ligon, Ethan

Abstract

This paper estimates an agency model of contracts used in California's processing-tomato industry. Model estimation proceeds in three stages. We first estimate growers' stochastic production possibilities, and then, for a given vector of preference parameters, compute an optimal compensation schedule. Finally, we compare computed compensations with actual compensations and choose preference parameters to minimize distance between the two. Assuming perfect competition and risk neutrality for processors, we obtain an estimate of .08 for growers' measure of constant absolute risk aversion (where returns are measured in units of $100/ton), and find that growers' effort cost is 1.8% of total operating cost. Welfare losses from information constraints are estimated at .59% of mean compensation, and quality measurement improves efficiency (measured as a percentage increase in expected quality) by 1.08%.

Suggested Citation

  • Hueth, Brent & Ligon, Ethan, 2001. "Estimation Of An Optimal Tomato Contract," 2001 Annual meeting, August 5-8, Chicago, IL 20560, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    • Handle: RePEc:ags:aaea01:20560
    DOI: 10.22004/ag.econ.20560
    as

    Download full text from publisher

    File URL: https://ageconsearch.umn.edu/record/20560/files/sp01hu10.pdf
    Download Restriction: no
    File URL: https://libkey.io/10.22004/ag.econ.20560?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Kim, Son Ku, 1995. "Efficiency of an Information System in an Agency Model," Econometrica, Econometric Society, vol. 63(1), pages 89-102, January.
    2. Christopher Ferrall & Bruce Shearer, 1999. "Incentives and Transactions Costs Within the Firm: Estimating an Agency Model Using Payroll Records," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 66(2), pages 309-338.
    3. Grossman, Sanford J & Hart, Oliver D, 1983. "An Analysis of the Principal-Agent Problem," Econometrica, Econometric Society, vol. 51(1), pages 7-45, January.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Mussell, Al, 2003. "PRICE DISCOVERY MECHANISMS AND ALTERNATIVES FOR CANADIAN AGRICULTURE; Part II: A Review of Pricing Mechanisms from the Economic Literature," Miscellaneous Publications 18100, George Morris Center.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Benjamin E. Hermalin and Michael L. Katz., 1994. "Corporate Diversification and Agency," Economics Working Papers 94-227, University of California at Berkeley.
    2. Nafziger, Julia, 2009. "Timing of information in agency problems with hidden actions," Journal of Mathematical Economics, Elsevier, vol. 45(11), pages 751-766, December.
    3. Lilia Filipova, 2007. "Monitoring and Privacy in Automobile Insurance Markets with Moral Hazard," Discussion Paper Series 293, Universitaet Augsburg, Institute for Economics.
    4. Joseph G. Haubrich, 1995. "Imperfect state verification and financial contracting," Working Papers (Old Series) 9506, Federal Reserve Bank of Cleveland.
    5. Herweg, Fabian & Müller, Daniel, 2008. "The Optimality of Simple Contracts: Moral Hazard and Loss Aversion," Bonn Econ Discussion Papers 17/2008, University of Bonn, Bonn Graduate School of Economics (BGSE).
    6. Elisa Gerten & Michael Beckmann & Elisa Gerten & Matthias Kräkel, 2022. "Information and Communication Technology, Hierarchy, and Job Design," ECONtribute Discussion Papers Series 189, University of Bonn and University of Cologne, Germany.
    7. Budde, Jörg, 2005. "Information in tournaments under limited liability," Bonn Econ Discussion Papers 21/2005, University of Bonn, Bonn Graduate School of Economics (BGSE).
    8. Budde, Jörg, 2009. "Information in tournaments under limited liability," Journal of Mathematical Economics, Elsevier, vol. 45(1-2), pages 59-72, January.
    9. Pierre Jinghong Liang, 2000. "Accounting Recognition, Moral Hazard, and Communication," Contemporary Accounting Research, John Wiley & Sons, vol. 17(3), pages 458-490, September.
    10. Adam Copeland & Cyril Monnet, 2009. "The Welfare Effects of Incentive Schemes," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 76(1), pages 93-113.
    11. Fabian Herweg & Daniel Muller & Philipp Weinschenk, 2010. "Binary Payment Schemes: Moral Hazard and Loss Aversion," American Economic Review, American Economic Association, vol. 100(5), pages 2451-2477, December.
    12. Florian Hoffmann & Roman Inderst & Marcus Opp, 2021. "Only Time Will Tell: A Theory of Deferred Compensation [Motivating Innovation in Newly Public Firms]," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 88(3), pages 1253-1278.
    13. Jung, Jin Yong & Kim, Son Ku, 2015. "Information space conditions for the first-order approach in agency problems," Journal of Economic Theory, Elsevier, vol. 160(C), pages 243-279.
    14. Kim, Son Ku & Wang, Susheng, 1998. "Linear Contracts and the Double Moral-Hazard," Journal of Economic Theory, Elsevier, vol. 82(2), pages 342-378, October.
    15. Jörg Budde & Matthias Kräkel, 2011. "Limited liability and the risk–incentive relationship," Journal of Economics, Springer, vol. 102(2), pages 97-110, March.
    16. Marie-Cécile Fagart & Bernard Sinclair-Desgagné, 2007. "Ranking Contingent Monitoring Systems," Management Science, INFORMS, vol. 53(9), pages 1501-1509, September.
    17. Starmans, Jan, 2024. "Contracting and search with heterogeneous principals and agents," Journal of Economic Theory, Elsevier, vol. 217(C).
    18. Asseyer, Andreas, 2025. "Information orders in screening problems," Journal of Economic Theory, Elsevier, vol. 225(C).
    19. Demougin, Dominique & Fluet, Claude, 2001. "Monitoring versus incentives," European Economic Review, Elsevier, vol. 45(9), pages 1741-1764, October.
    20. Alexander K. Koch & Julia Nafziger, 2012. "Job Assignments under Moral Hazard: The Peter Principle Revisited," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 21(4), pages 1029-1059, December.

    More about this item

    Keywords

    ;

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ags:aaea01:20560. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: AgEcon Search (email available below). General contact details of provider: https://edirc.repec.org/data/aaeaaea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.