Contract Incentives in the Processed Potato Industry
نویسنده
چکیده
Abstract: The processed potato industry is highly vertically coordina ted though the use of production contracts between growers and processors. Contracts in this industry are primarily used to combat market thinness and potato quality requirements. This study uses a two period principle-agent model to describe the incentives inherit in processing potato production contracts. Actual processor production contracts and delivered potato loads from the Columbia Basin are examined. We conclude that contracts are effective at increasing potato load quality over the spot market alternative. Additionally, processors are able to gage grower ability levels in at the end of the first contract period, which leads to reductions in grower payments for specific levels of potato quality, also known as ratcheting.
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