Contractual Externalities and Contract Design -Evidence from Farmland Lease Contracts in U.S. Agriculture

In modern U.S. agriculture, a tenant typically contracts with more than one landlord, although most of the past literature has focused exclusively on bilateral contracts with a single tenant and a single landlord. We argue that, in the presence of contractual externalities under which the landlords do not cooperatively act, multilateral contracting results in higher-powered contracts for the tenant, due to inefficient competition among the landlords, and that this incentive effect becomes a motivation for the use of cash rental contacts. Using the USDAfs AELOS data set, we show that the number of landlords per tenant indeed increases the likelihood of cash rent and changes the qualitative properties of the contract choice equation. These outcomes provide empirical evidence supporting the incentive hypothesis.Land Economics/Use,

Information Sharing and Oligopoly in Agricultural Markets: The Role of Cooperative Bargaining Associations

We study incentives for information sharing (about uncertain future demand for final output) among agricultural intermediaries in imperfectly competitive markets for farm output. Information sharing always increases expected grower and consumer surplus, but may reduce expected intermediary profits. Even when expected intermediary profits increase with information sharing, firms face a Prisoner's Dilemma where it is privately rational for each firm to withhold information, given that other firms report truthfully. This equilibrium can be avoided if firms' information reports are verifiable, and if firms commit to an ex ante contract that forces ex post information revelation. We argue that agricultural bargaining represents one means to achieve verifiability and to implement such a contract.Agribusiness,

On the Efficacy of Contractual Provisions for Processing Tomatoes

This paper uses extensive data on production outcomes for processing tomato growers in California to examine the efficacy of explicit incentives observed in grower-processor contracts. Our data include all deliveries of tomatoes to some 51 processors over a period of 7 years in which at least 65 unique types of contracts are employed. Results indicate that incentives account for a significant proportion of observed variation in production outcomes, and that complementarities across different sorts of "incentive instruments" play a prominent role in contract design. Although explicit incentives explain a substantial portion of the variation in production outcomes relative to that which could be explained by incentives (as captured by processor/year fixed effects), there remains considerable variation which might be accounted for by unobserved or implicit incentives. Finally, we control for a quite exhaustive set of factors other than incentive provisions that might conceivably affect expected production outcomes, yet are still left with a substantial amount of unexplained variation.Crop Production/Industries,

A Life-Cycle Perspective on Governing Cooperative Enterprises in Agriculture

Cooperatives, Governance, Life Cycle, Competition, Finance, Agribusiness, Q12, Q13, Q14,

The Cooperative Firm as Monitored Credit

We develop a financial-contracting theory of the cooperative fim where production requires three generic tasks: working, managing, and monitoring. Workers provide an intermediate input (or labor directly); managers convert the workers' input into a final output; and directors monitor managers. We model the cooperative firm by letting the workers act also as directors. We show how bundling the labor and monitoring tasks can expand the scope for equilibrium market activity, even when doing so results in a strictly positive deadweight loss. Our theory provides new insight with respect to a substantial theoretical and empirical literature on the "life cycle" of worker-managed firms, and with respect to a complementary body of anecdotal evidence on the causes of worker buyouts and cooperative "degeneration". Our theory is also consistent with differences between the board compensation policies of cooperative firms, where members typically receive little more than travel and per-diem reimbursements, and of investor-owned firms, where members receive substantial pay often based in part on firm financial performance.

QUALITY MEASUREMENT AND RISK-SHARING IN CONTRACTS FOR CALIFORNIA FRUITS AND VEGETABLES

We hypothesize that imperfect quality measurement in contracts for fresh fruits and vegetables results in a moral-hazard problem, and that the final price of the produce provides additional information regarding quality. As a consequence, growers are not shielded from all price risk. This hypothesis is tested informally with observations on actual contracts in California.Demand and Price Analysis, Risk and Uncertainty,

Local Ownership in Biofuels Production: A Strategy for Rural Development?

biofuels, local ownership, rural development, risk, investment, Community/Rural/Urban Development,

Information Transmission in Cattle Markets: A Case Study of the Chariton Valley Beef Alliance

The declining share of beef in total U.S. meat consumption has motivated industry-wide efforts to improve average beef quality through more effective coordination among the various market participants. Increased use of explicit grid pricing mechanisms over the last decade represents initial efforts at improved coordination. More recent efforts include animal-specific carcass data collection, with subsequent transmission to feeders and the relevant cow/calf operations, and improved source verification procedures aimed at (among other things) reducing the overall cost of medical treatment for live animals. None of these organizational innovations is costless, and indeed a number of significant barriers must be overcome before more widespread adoption of such practices takes place. This paper takes a detailed look at one organization’s attempts to overcome some of these barriers, and provides a qualitative assessment of this and other potential organizational responses.cattle and beef markets, information transmission, producer alliance, Livestock Production/Industries, Marketing,

Cooperative Conversions, Failures and Restructurings: An Overview

The cases assembled in this special issue provide a rich setting for an examination of a number of cooperative conversion and restructurings that have occurred over the last 10 years. The cases also provide some lessons on the larger cooperative problems and questions in which cooperative researchers have been interested. The cases suggest that some of the conversions and restructurings are due to what can simply be called poor management, something that is not unique to co-ops, but is in fact common to all business enterprises regardless of their structure. At the same time, the cases also point out that common structural problems associated with cooperatives – such as lack of capital, property right problems and portfolio problems – do have an impact on the structure chosen by cooperatives and their members. Finally, a number of case-study authors point to increasing capital requirements in industrialized agriculture as a significant challenge for cooperatives seeking to integrate along the supply chain.Agribusiness,

Quality Management and Information Transmission in Cattle Markets: A Case Study of the Chariton Valley Beef Alliance

The declining share of beef in total U.S. meat consumption has motivated industry-ï¾­wide efforts to improve average beef quality through more effective coordination among the various market participants. Increased use of explicit "grid" pricing mechanisms over the last decade represents initial efforts at improved coordination. More recent efforts include animalï¾­specific carcass data collection, with subsequent transmission to feeders and the relevant cowï¾­calf operations, and improved "source verification" procedures aimed at (among other things) reducing the overall cost of medical treatment for live animals. None of these organizational innovations is costless; indeed, a number of significant barriers must be overcome before such practices can be adopted more widely. In this paper, we take a detailed look at one organization's attempts to overcome some of these barriers and provide an assessment of the costs and benefits of doing so. Keywords: cattle markets, information transmission, source verification.