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Contract design in soybean production

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  • Ramesh, Nandini

Abstract

Although there is considerable interest in component pricing of soybeans from both the industry and the academia, it is not commonly observed in the soybean industry. In this thesis, the Principal Agent model is used to design a contract between a processor and grower. The processor provides incentives to growers to produce soybeans with higher components (protein and oil) in them. Under the assumption that growers are risk neutral, a contract is designed where the grower faces all the risk in the production of components. The contract also compensates the grower for the yield drag as a result of production of soybeans with higher components in them. Since there is significant difference in the production of components across regions and year, a diffe-2000. Data from the Iowa Soybean yield trials show that an expected social surplus of {dollar}0.15/bu and {dollar}8.02/acre can be generated through a contract with incentives for components.

Suggested Citation

  • Ramesh, Nandini, 2002. "Contract design in soybean production," ISU General Staff Papers 2002010108000018191, Iowa State University, Department of Economics.
    • Handle: RePEc:isu:genstf:2002010108000018191
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    References listed on IDEAS

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    3. Hueth, Brent & Hennessy, David A., 2002. "Contracts and Risk in Agriculture: Conceptual and Empirical Foundations," Staff General Research Papers Archive 5324, Iowa State University, Department of Economics.
    4. Nelson J. Updaw, 1980. "Social Costs and Benefits from Component Pricing of Soybeans in the United States," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 62(4), pages 647-655.
    5. Plato, Gerald E., 2001. "The Soybean Processing Decision: Exercising A Real Option On Processing Margins," Technical Bulletins 33567, United States Department of Agriculture, Economic Research Service.
    6. Plato, Gerald E., 2001. "The Soybean Processing Decision: Exercising A Real Option On Processing Margins," Technical Bulletins 33567, United States Department of Agriculture, Economic Research Service.
    7. Updaw, Nelson J. & Bullock, J. Bruce & Nichols, T. E., 1976. "Pricing Soybeans on the Basis of Oil and Protein Content," Journal of Agricultural and Applied Economics, Cambridge University Press, vol. 8(2), pages 129-132, December.
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