Pooling, Separating, and Cream-Skimming In Relative-Performance Contracts

Existing research on tournament-style contests suggests that mechanisms to sort contestants by ability level are unnecessary in the case of linear relative-performance contracts. This paper suggests that this result stems from uniform treatment of workers' marginal returns from effort, marginal disutilities of effort, and reservation wages. Here, we investigate relative-performance contracts with a model that allows these three factors to vary by growers' unobservable ability. Given this framework, we find that it is possible for processors to improve expected profits and total expected welfare by replacing a single contract offering meant to pool all growers with an offering of two contracts meant to separate growers by ability. Under some circumstances, a "cream-skimming" contract offering designed to attract only workers above a minimum ability level can also improve expected profits.Production Economics,

CASH MARKET OR CONTRACT? HOW TECHNOLOGY AND CONSUMER DEMAND INFLUENCE THE DECISION

The use of contracts for producing and marketing agricultural commodities has become nearly universal in some sectors. Two factors are most frequently cited as being responsible for the use of agricultural contracts. The first, a demand-side factor, is the development of strong consumer preferences for specific qualities. The second, a supply-side factor, is technological change. In this paper, we use a principal agent framework to model how consumer demand and technology enter into a firm's decision to use contracts or the cash market.Demand and Price Analysis, Marketing,

Product Quality and Grower Reputation: Dynamic Contracts With Adverse Selection

We investigate the design of a two-period contract between an agricultural processor and growers whose quality-ability types are not observable to the processor. After characterizing the optimal contracts and establishing conditions for a separating equilibrium, we investigate how a payment based on first-period reputation may induce more first-period effort. We show that this reputation-based payment can improve both the processor's and the grower's welfare, resulting in a dominant equilibrium.Agribusiness,

Pooling, Separating, and Cream-Skimming In Relative-Performance Contracts

Existing research on tournament-style contests suggests that mechanisms to sort contestants by ability level are unnecessary in the case of linear relative-performance contracts. This paper suggests that this result stems from uniform treatment of workers' marginal returns from effort, marginal disutilities of effort, and reservation wages. Here, we investigate relative-performance contracts with a model that allows these three factors to vary by growers' unobservable ability. Given this framework, we find that it is possible for processors to improve expected profits and total expected welfare by replacing a single contract offering meant to pool all growers with an offering of two contracts meant to separate growers by ability. Under some circumstances, a 'cream-skimming' contract offering designed to attract only workers above a minimum ability level can also improve expected profits.Labor and Human Capital,

SIMULATING THE IMPACTS OF CONTRACT SUPPLIES IN A SPOT MARKET-CONTRACT MARKET EQUILIBRIUM SETTING

This paper embeds a principal-agent model of producer-processor equilibrium within a market equilibrium model of contract and cash markets to analyze the impact of contracting on the spot market for hogs. The principal-agent model incorporates both quality differentiation in the contract market and an endogenously determined cash market price to account for processor-producer relationships in equilibrium. For five types of contracting scenarios, market equilibrium conditions are derived, and results are presented for a numerical example. Contrary to previous results, the paper finds that the increased supply of hogs under typical formula-price contracts can increase the cash market price and reduce its variance.Marketing,

SOURCES OF PRODUCTIVITY GROWTH DURING THE TRANSITION TO ALTERNATIVE CROPPING SYSTEMS

Traditional measures of productivity growth may not fully account for all sources of growth during the transition from conventional to alternative cropping systems. This paper treats soil quality as part of the production process and incorporates it directly into rotational measures of productivity growth. An application to data from an experimental cropping system in Pennsylvania suggests that both experimental learning and soil-quality improvements were important sources of growth during the system's transition.Productivity Analysis,

PRODUCTION RISK REVISITED IN A STOCHASTIC FRONTIER FRAMEWORK: EVALUATING NOISE AND INEFFICIENCY IN COVER CROP SYSTEMS

This paper investigates both risk and technical inefficiency in a general stochastic frontier framework that is consistent with the Just-Pope framework. After applying the model to two separate cash crop-cover crop systems, the more general stochastic frontier model is found to reorder the noisiness of alternative cover crop regimes.Crop Production/Industries, Risk and Uncertainty,

Consumer Choice of Private Label or National Brand: The case of organic and non-organic milk

We use a two-stage, sample selection model to investigate organic milk purchases using Neilsen’s Homescan data. In the first stage, households decide on a weekly basis to buy mainly organic milk or non-organic milk. Results from this stage show that higher income, better education, having children at home, and several other demographic and marketing variables have a positive effect on organic choice. In the second stage, consumers then choose to buy mainly private label milk or national brand milk conditional on their first-stage choice. Most demographic and marketing variables are found to affect the organic and non-organic private label decision in the same way. However, our results show that a few factors, such as marriage status and children, affect the private label decision differently for organic and non-organic milk customers.organic milk, private label, sample selection, Agribusiness, Consumer/Household Economics, Demand and Price Analysis,

Local Marketing of Organic Food by Certified Organic Processors, Manufacturers, and Distributors

Local organic food is garnering new interest. Using new data from a national survey of certified organic intermediaries, we examine local markets for organic food and assess which firms are likely to market locally. Approximately 25% of survey respondents primarily market their products locally, and 15% of the value of organic food (at the intermediate level) is sold locally. Larger firms are less likely to market locally, firms that handle a greater share of organic products are more likely to market locally, and the likelihood of marketing locally is lower the longer a firm has been certified organic.local food, local organic food, organic handlers, organic intermediaries, organic marketing, Agribusiness, Environmental Economics and Policy, Marketing,

Meat Managers' Expectations Regarding Marketing of Irradiated Red Meats

The objective of this study is to assess meat managers' expectations about impact of the recent regulatory approval of irradiated raw meat and meat products on marketing decisions and plans by supermarkets and grocery meat retailers. Forty managers of meat departments were interviewed in person to obtain the information for the study. While many of the meat managers believed that irradiation would help increase shelf life and reduce spoilage, they were less optimistic about consumers being willing to pay a higher price for the irradiated product than the non-irradiated product.Agribusiness,