Double Sided Moral Hazard and Share Contracts in agriculture

Marta Fernandez-Olmos, Jorge Rosell-Martinez and Manuel Antonio Espitia-Escuer

No 43863, 2008 International Congress, August 26-29, 2008, Ghent, Belgium from European Association of Agricultural Economists

Abstract: This paper develops a double-sided moral hazard model of share contract in agriculture, with imperfect quality measurement by the agent and the principal, who contribute to the final good quality in terms of production effort and marketing effort respectively. Using this model, we analyse the implications of the share contract for quantity and quality, often ignored in previous analysis. With the help of a simulation exercise, we prove that the outcome-conditioned share generally weakens the agent´s incentive to make effort in quality input. This finding could explain the contractual evidence in some differentiated markets such as the wine market, where bottle-price conditioned contracts are rarely used.

Keywords: Farm; Management (search for similar items in EconPapers)
Pages: 8
Date: 2008
New Economics Papers: this item is included in nep-bec and nep-cta
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Persistent link: https://EconPapers.repec.org/RePEc:ags:eaae08:43863

DOI: 10.22004/ag.econ.43863

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