Estimation of an Efficient Tomato Contract

Ethan Ligon
Authors registered in the RePEc Author Service: Brent Hueth ()

Staff General Research Papers Archive from Iowa State University, Department of Economics

Abstract: This paper estimates an agency model of contracts used in California's processing-tomato industry. Model estimation proceeds in three stages. We first estimate growers' stochastic production possibilities, and then, for a given vector of preference parameters, compute an optimal compensation schedule. Finally, we compare computed compensations with actual compensations and choose preference parameters to minimize distance between the two. Assuming perfect competition and risk neutrality for processors, we obtain an estimate of 0.08 for growers' measure of constant absolute risk aversion, and find that growers who face higher powered incentives produce higher levels of soluble solids, at a cost which is 1.8% greater than it would be otherwise. Efficiency losses from information constraints are estimated at 0.59% of mean compensation, while existing quality measurement improves efficiency by 1.08\.

Date: 2002-01-01
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Citations: View citations in EconPapers (19)

Published in European Review of Agricultural Economics 2002, vol. 29 no. 2, pp. 237-253

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