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Tournament Mechanism in Wine-Grape Contracts: Evidence from a French Wine Cooperative

Author

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  • M'Hand Fares

    (AGIR - AGroécologie, Innovations, teRritoires - INRA - Institut National de la Recherche Agronomique - Toulouse INP - Institut National Polytechnique (Toulouse) - UT - Université de Toulouse)

  • Luis Orozco

    (LEREPS - Laboratoire d'Etude et de Recherche sur l'Economie, les Politiques et les Systèmes Sociaux - UT Capitole - Université Toulouse Capitole - UT - Université de Toulouse - UT2J - Université Toulouse - Jean Jaurès - UT - Université de Toulouse - Institut d'Études Politiques [IEP] - Toulouse - ENSFEA - École Nationale Supérieure de Formation de l'Enseignement Agricole de Toulouse-Auzeville)

Abstract

This article analyzes the contractual relationship between a wine cooperative (winery) and its member (growers). This relationship is plagued by moral hazard and adverse selection problems in grape quality. Indeed, growers can be opportunistic since the cooperative is unable to observe: (i) their effort level due to imperfect monitoring technology; (ii) their productive abilities (types) due to adverse selection. Because the growers' vineyard practices and efforts are one of the main determinants of grape quality, the cooperative implements an incentive compensation system to induce growers to provide the maximum effort towards quality. This compensation scheme is similar to that in tournaments (Lazear and Rosen, 1981; Green and Stokey, 1983; Knoeber, 1989; Prendergast, 1999). In our case, the cooperative promotes competition between growers by offering a promotion, while, at the same time, organizing the contest by creating homogenous groups of growers using a menu of contracts and monitoring through regular visits to the vineyard. Using a database of 1219 contracts, we test the effect of: (i) the cooperative's tournament compensation scheme; (ii) the menu of contracts and monitoring mechanism. The results of our econometric estimations provide some confirmation of both effects.

Suggested Citation

  • M'Hand Fares & Luis Orozco, 2014. "Tournament Mechanism in Wine-Grape Contracts: Evidence from a French Wine Cooperative," Post-Print hal-01093245, HAL.
    • Handle: RePEc:hal:journl:hal-01093245
    DOI: 10.1017/jwe.2014.29
    Note: View the original document on HAL open archive server: https://hal.science/hal-01093245
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    Cited by:

    1. Olivier Bonroy & Alexis Garapin & Hamilton Stephen & Diogo Souza-Monteiro, 2018. "Free-riding on product quality in cooperatives: lessons from an experiment," Post-Print hal-01815808, HAL.
    2. Mixon Jr., Franklin G. & Gómez-Mejia, Luis R., 2020. "The Competitive Struggle to Win Tournaments: The Allies’ Race to Capture Adolf Hitler’s Eagle’s Nest," American Business Review, Pompea College of Business, University of New Haven, vol. 23(1), pages 3-17, May.
    3. Rogers A Lumenyela & Provident Dimosso & Tafuteni Chusi, 2023. "Private- Cooperatives Synergy in the Face of Agricultural Policy Changes: Moral Hazard Behavior Ameliorated? An Experience from Coffee Cooperatives in Southern Highlands, Tanzania," Journal of Economics and Behavioral Studies, AMH International, vol. 14(4), pages 11-21.
    4. Liang, Qiao & Hendrikse, George, 2016. "Pooling and the yardstick effect of cooperatives," Agricultural Systems, Elsevier, vol. 143(C), pages 97-105.

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    More about this item

    Keywords

    Wine grape; supply contracts; quality; tournament; cooperative;
    All these keywords.

    JEL classification:

    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • Q13 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agricultural Markets and Marketing; Cooperatives; Agribusiness

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