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Estimation of an Efficient Tomato Contract

Listed author(s):
  • Ligon, Ethan

This paper estimates an agency model of contracts used in California's processing-tomato industry. Model estimation proceeds in three stages. We first estimate growers' stochastic production possibilities, and then, for a given vector of preference parameters, compute an optimal compensation schedule. Finally, we compare computed compensations with actual compensations and choose preference parameters to minimize distance between the two. Assuming perfect competition and risk neutrality for processors, we obtain an estimate of 0.08 for growers' measure of constant absolute risk aversion, and find that growers who face higher powered incentives produce higher levels of soluble solids, at a cost which is 1.8% greater than it would be otherwise. Efficiency losses from information constraints are estimated at 0.59% of mean compensation, while existing quality measurement improves efficiency by 1.08\.

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Paper provided by Iowa State University, Department of Economics in its series Staff General Research Papers Archive with number 10235.

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Date of creation: 01 Jan 2002
Publication status: Published in European Review of Agricultural Economics 2002, vol. 29 no. 2, pp. 237-253
Handle: RePEc:isu:genres:10235
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Iowa State University, Dept. of Economics, 260 Heady Hall, Ames, IA 50011-1070

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