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Adapting Contract Theory to Fit Contract Farming

  • Wu, Steven Y.
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    This article discusses the current state of contract theory and its usefulness for conceptualizing issues related to agricultural contracting. I will discuss the limitations of existing theory for applied work, and what methodological improvements are needed to enhance the usefulness of the theory to agricultural economists. One pervasive problem is that the canonical economic literature on contracts is rather fragmented and the various methodological strands are narrow in their focus. As such, there is a need for agricultural economists to engage in methodological research to develop applied contracting models that can capture higher order features of real world agricultural contracts while delivering generalizable comparative statics predictions. The need for such research is obvious as contracting continues to expand along the entire modern food marketing channel. In the latter part of this article, I develop a simple model to illustrate how classic methodological approaches can be combined with recent developments in contract and game theory to construct applied theory models that are useful for capturing some important features of agricultural contracts.

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    File URL: http://purl.umn.edu/161894
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    Paper provided by Agricultural and Applied Economics Association in its series 2014 Allied Social Science Association (ASSA) Annual Meeting, January 3-5, 2014, Philadelphia, PA with number 161894.

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    Date of creation: Nov 2013
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    Handle: RePEc:ags:aaeass:161894
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    24. Hueth, Brent & Ligon, Ethan & Wolf, Stephen & Wu, Steven, 1999. "Incentive Instruments in Agricultural Contracts: Input Control, Monitoring, Quality Measurement, and Price Risk," Staff General Research Papers 5237, Iowa State University, Department of Economics.
    25. Matthias Blonski & Peter Ockenfels & Giancarlo Spagnolo, 2011. "Equilibrium Selection in the Repeated Prisoner's Dilemma: Axiomatic Approach and Experimental Evidence," American Economic Journal: Microeconomics, American Economic Association, vol. 3(3), pages 164-92, August.
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