Tournament Mechanism in Wine-Grape Contracts: Evidence from a French Wine Cooperative*

M'hand Fares and Luis Orozco ()

Journal of Wine Economics, 2014, vol. 9, issue 3, 320-345

Abstract: This article analyzes the contractual relationship between a wine cooperative (winery) and its member (growers). This relationship is plagued by moral hazard and adverse selection problems in grape quality. Indeed, growers can be opportunistic since the cooperative is unable to observe: (1) their effort level due to imperfect monitoring technology; and (2) their productive abilities (types) due to adverse selection. Because the growers' vineyard practices and efforts are one of the main determinants of grape quality, the cooperative implements an incentive compensation system to induce growers to make the maximum effort toward the achievement of quality. This compensation scheme is similar to that in tournaments (Green and Stokey, 1983; Knoeber, 1989; Lazear and Rosen, 1981; Prendergast, 1999). In our case, the cooperative promotes competition between growers by offering a promotion to a higher-quality contract, while, at the same time, organizing the contest by creating homogeneous groups of growers using a menu of contracts and monitoring through regular visits to the vineyard. Using a database of 1,219 contracts, we test the effect of: (1) the cooperative's tournament compensation scheme; (2) the menu of contracts and monitoring mechanism. The results of our econometric estimations provide some confirmation of both effects. (JEL classifications: L14, D82, Q13)

Date: 2014
References: Add references at CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
https://www.cambridge.org/core/product/identifier/ ... type/journal_article link to article abstract page (text/html)

Related works:
Working Paper: Tournament Mechanism in Wine-Grape Contracts: Evidence from a French Wine Cooperative (2014)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cup:jwecon:v:9:y:2014:i:03:p:320-345_00

Access Statistics for this article

More articles in Journal of Wine Economics from Cambridge University Press Cambridge University Press, UPH, Shaftesbury Road, Cambridge CB2 8BS UK.
Bibliographic data for series maintained by Kirk Stebbing ().