IDEAS home Printed from
   My bibliography  Save this paper

Incentive Contracts To Meet Functional Characteristics In Wheat Purchasing


  • Wilson, William W.
  • Maxwell, Brett J.
  • Dahl, Bruce L.


Consistency of functional characteristics in hard red spring (HRS) wheat is a concern confronting sellers and buyers. This research analyzes contract incentives for importers with respect to cost and potential risk of acceptance. A principal-agent framework is utilized to examine contract incentives. In the principal-agent contract, the principal offers the contract, the agent rejects or accepts the contract, and then decides how much effort to apply. All this is subject to risk for the agent and moral hazard for the principal. An example is presented, for which equilibrium contract terms are a base price of 454 cents per bushel for low quality wheat and a premium of 36 cents per bushel if high quality is achieved. The premium for high quality is unchanged as the agent's outside option increases, but increases as the probability of conformance with high effort declines or as the agent's cost of high effort increases. Small changes in several of the parameter values (agent's outside option, agent's cost of high/low effort, principal value for high/low effort, and principal's outside options if the contract was not extended or if the agent rejects the contract) result in the principal not offering a contract.

Suggested Citation

  • Wilson, William W. & Maxwell, Brett J. & Dahl, Bruce L., 2004. "Incentive Contracts To Meet Functional Characteristics In Wheat Purchasing," Agribusiness & Applied Economics Report 23617, North Dakota State University, Department of Agribusiness and Applied Economics.
  • Handle: RePEc:ags:nddaae:23617

    Download full text from publisher

    File URL:
    Download Restriction: no


    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:nddaae:23617. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (AgEcon Search). General contact details of provider: .

    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.

    We have no references for this item. You can help adding them by using 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.

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

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.