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The yield/quality trade-off and contractual choice

  • Olmos, Marta Fernandez
  • Rosell-Martinez, Jorge
  • Espitia-Escuer, Manuel Antonio
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    This paper provides an analysis of the choice of governance mechanism in agriculture using an integrated perspective based on agency theory. The main ways of organizing agriculture are compared: spot market and incentive contract. With the analytical development of both models, it is explored that the choice of the optimal mechanism depends on initial conditions such as uncertainty, the risk aversion of the agents or the number of competitors. Moreover, according to the predictions made by the economic literature on agrarian organization, the results support the coexistence of both governance alternatives.

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    File URL: http://purl.umn.edu/6065
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    Paper provided by American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association) in its series 2008 Annual Meeting, July 27-29, 2008, Orlando, Florida with number 6065.

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    Date of creation: 2008
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    Handle: RePEc:ags:aaea08:6065
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    7. Hueth, Brent & Wolf, Stephen & Ligon, Ethan, 2001. "Policing Mechanisms in Agricultural Contracts," Staff General Research Papers 5257, Iowa State University, Department of Economics.
    8. Hueth, Brent & Ligon, Ethan, 1999. "Producer Price Risk and Quality Measurement," Staff General Research Papers 5037, Iowa State University, Department of Economics.
    9. Ligon, Ethan, 2002. "Estimation of an Efficient Tomato Contract," Staff General Research Papers 10235, Iowa State University, Department of Economics.
    10. William Chambers & Robert P. King, 2002. "Changing Agricultural Markets: Industrialization and Vertical Coordination in the Dry Edible Bean Industry," Review of Agricultural Economics, Agricultural and Applied Economics Association, vol. 24(2), pages 495-511.
    11. Timothy W. McGuire & Richard Staelin, 1983. "An Industry Equilibrium Analysis of Downstream Vertical Integration," Marketing Science, INFORMS, vol. 2(2), pages 161-191.
    12. Steven Shavell, 1979. "Risk Sharing and Incentives in the Principal and Agent Relationship," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 55-73, Spring.
    13. Jaskold Gabszewicz, J. & Thisse, J. -F., 1979. "Price competition, quality and income disparities," Journal of Economic Theory, Elsevier, vol. 20(3), pages 340-359, June.
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    18. Stiglitz, Joseph E., 1988. "Economic organization, information, and development," Handbook of Development Economics, in: Hollis Chenery & T.N. Srinivasan (ed.), Handbook of Development Economics, edition 1, volume 1, chapter 5, pages 93-160 Elsevier.
    19. Giraud-Heraud, Eric & Soler, Louis-Georges & Tanguy, Herve, 1999. "Avoiding Double Marginalisation in Agro-Food Chains," European Review of Agricultural Economics, Foundation for the European Review of Agricultural Economics, vol. 26(2), pages 179-98, June.
    20. Shaked, Avner & Sutton, John, 1982. "Relaxing Price Competition through Product Differentiation," Review of Economic Studies, Wiley Blackwell, vol. 49(1), pages 3-13, January.
    21. Alexander, Corinne E. & Goodhue, Rachael E. & Rausser, Gordon C., 2007. "Do Incentives For Quality Matter?," Journal of Agricultural and Applied Economics, Southern Agricultural Economics Association, vol. 39(01), April.
    22. Newbery, D M G & Stiglitz, J E, 1979. "The Theory of Commodity Price Stabilisation Rules: Welfare Impacts and Supply Responses," Economic Journal, Royal Economic Society, vol. 89(356), pages 799-817, December.
    23. Andersson, Hans, 1995. "Primary and Secondary Producers: Economic Implications of Contracts in the Food Marketing Chain," European Review of Agricultural Economics, Foundation for the European Review of Agricultural Economics, vol. 22(3), pages 310-20.
    24. Allen, Douglas W & Lueck, Dean, 1999. "The Role of Risk in Contract Choice," Journal of Law, Economics and Organization, Oxford University Press, vol. 15(3), pages 704-36, October.
    25. Miguel Carriquiry & Bruce A. Babcock, 2002. "Can Spot and Contract Markets Co-Exist in Agriculture?," Center for Agricultural and Rural Development (CARD) Publications 02-wp311, Center for Agricultural and Rural Development (CARD) at Iowa State University.
    26. Otsuka, Keijiro & Chuma, Hiroyuki & Hayami, Yujiro, 1992. "Land and Labor Contracts in Agrarian Economies: Theories and Facts," Journal of Economic Literature, American Economic Association, vol. 30(4), pages 1965-2018, December.
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