Product Quality and Grower Reputation: Dynamic Contracts With Adverse Selection

Yanguo Wang and Edward C. Jaenicke

No 19543, 2005 Annual meeting, July 24-27, Providence, RI from American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association)

Abstract: 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.

Keywords: Agribusiness (search for similar items in EconPapers)
Date: 2005
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