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Producer Price Risk and Quality Measurement

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  • Hueth, Brent
  • Ligon, Ethan

Abstract

Risk-averse farmers in the produce industry grow a product whose market price is often quite unpredictable. Shippers or other intermediaries shield the farmer from much of this price risk; however, actual contracts between growers and shippers vary considerably across commodities in the residual price risk growers face. We hypothesize that imperfect quality measurement results in a moral hazard problem, and that price provides additional information regarding quality. As a consequence, an efficient contract does not shield growers from all idiosyncratic price risk. We examine this hypothesis for the case of fresh-market tomatoes. Copyright 1999, Oxford University Press.
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Suggested Citation

  • Hueth, Brent & Ligon, Ethan, 1999. "Producer Price Risk and Quality Measurement," Staff General Research Papers Archive 5037, Iowa State University, Department of Economics.
    • Handle: RePEc:isu:genres:5037
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