CONTRACT INCENTIVES AND EXCESSIVE NITROGEN USE IN AGRICULTURE

Paul Preckel (), Gerald Shively (), Timothy Baker (), Mei-Chin Chu and Jessica Eide Burrell

Journal of Agricultural and Resource Economics, 2000, vol. 25, issue 2, 17

Abstract: This study examines incentives for input use under tournament contracts. We analyze implications of contract design for nitrate-based environmental externalities generated by agricultural producers. Outcomes are compared from contracts awarded by tournament to those from fixed-payment contracts. Our findings show contract insecurity can distort input use. The model developed in this analysis is applied to a region of the U.S. where tournament-based production is prevalent and groundwater contamination is a problem. We find contract insecurity increases nitrogen use by about 12%, resulting in a 17% increase in nitrate leaching. Implications for contract modification to reduce environmental externalities while maintaining contract incentives are discussed.

Keywords: Crop; Production/Industries (search for similar items in EconPapers)
Date: 2000
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Persistent link: https://EconPapers.repec.org/RePEc:ags:jlaare:30902

DOI: 10.22004/ag.econ.30902

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