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Balancing Grower Protection Against Agency Concerns: An Economic Analysis of Contract Termination Damages

Myoungki Lee, Steven Wu () and Maoyong Fan ()

Journal of Agricultural and Resource Economics, 2008, vol. 33, issue 2, 15

Abstract: This study examines legislation that would grant growers termination damages if their contracts are terminated. Our model suggests that, with no contracting frictions, damages would not reduce ex ante efficiency as processors can contract around damages through contract restructuring. Growers would earn less under continuation but would be protected if terminated, although overall expected profits would be unaffected. However, when contracting friction exist, then efficiency losses can occur as processors would be constrained in restructuring contractual incentives to deal with moral hazard. Growers' expected profits would increase while processors' profit would decrease.

Keywords: Farm; Management (search for similar items in EconPapers)
Date: 2008
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Working Paper: Balancing Grower Protection Against Agency Concerns: An Economic Analysis of Contract Termination Damages (2004) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:ags:jlaare:42461

DOI: 10.22004/ag.econ.42461

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