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Incentives and Moral Hazard: Plot Level Productivity of Factory-Operated and Outgrower-Operated Sugarcane Production in Ethiopia

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  • Wedimu, Mengistu A.
  • Henningsen, Arne
  • Czekaj, Tomasz G.

Abstract

We investigate the rather unique contractual arrangement between one of the largest sugar factories in Ethiopia and its adjacent outgrower associations. The only significant difference between the sugarcane production on the factory-operated plantation and on the outgrower-operated plots is the remuneration system and thus, the incentives to the workers. We compare the productivity of these two production models based on a new cross-sectional plot-level data set. As sugarcane production depends on various exogenous factors that are measured as categorical variables (e.g. soil type, cane variety, etc.), we estimate the production function by a nonparametric kernel regression method that takes into account both continuous and categorical explanatory variables without assuming a functional form. Our results show that outgrower-operated plots have−ceteris paribus−a significantly higher productivity than factory-operated plots, which can be explained by outgrowers having stronger incentives to put more effort in their work than the employees of the sugar factory.

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  • Wedimu, Mengistu A. & Henningsen, Arne & Czekaj, Tomasz G., 2015. "Incentives and Moral Hazard: Plot Level Productivity of Factory-Operated and Outgrower-Operated Sugarcane Production in Ethiopia," 2015 Conference, August 9-14, 2015, Milan, Italy 211900, International Association of Agricultural Economists.
  • Handle: RePEc:ags:iaae15:211900
    DOI: 10.22004/ag.econ.211900
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    Cited by:

    1. Wendimu, Mengistu Assefa & Henningsen, Arne & Gibbon, Peter, 2016. "Sugarcane Outgrowers in Ethiopia: “Forced” to Remain Poor?," World Development, Elsevier, vol. 83(C), pages 84-97.
    2. Moseki, Ofentse & Murray-Hudson, Michael & Kashe, Keotshephile, 2019. "Crop water and irrigation requirements of Jatropha curcas L. in semi-arid conditions of Botswana: applying the CROPWAT model," Agricultural Water Management, Elsevier, vol. 225(C).
    3. Meilin Ma & Richard J. Sexton, 2021. "Modern agricultural value chains and the future of smallholder farming systems," Agricultural Economics, International Association of Agricultural Economists, vol. 52(4), pages 591-606, July.
    4. Jenifer Piesse & Beatrice Conradie & Colin Thirtle & Nick Vink, 2018. "Efficiency in wine grape production: comparing long†established and newly developed regions of South Africa," Agricultural Economics, International Association of Agricultural Economists, vol. 49(2), pages 203-212, March.
    5. Bellemare, Marc F. & Bloem, Jeffrey R., 2018. "Does contract farming improve welfare? A review," World Development, Elsevier, vol. 112(C), pages 259-271.

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    More about this item

    Keywords

    Crop Production/Industries; International Development;

    JEL classification:

    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • Q12 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Micro Analysis of Farm Firms, Farm Households, and Farm Input Markets
    • Q15 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Land Ownership and Tenure; Land Reform; Land Use; Irrigation; Agriculture and Environment

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