The Principal–Agent Leasing Model of “Company + n Farmers” under Two Division Modes

Jianjun Yu, Xiaohuan Zheng, Yongwu Zhou and Qiongzhi Zhang
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Jianjun Yu: School of Business Administration, South China University of Technology, Guangzhou 510640, China
Xiaohuan Zheng: School of Business Administration, South China University of Technology, Guangzhou 510640, China
Yongwu Zhou: School of Business Administration, South China University of Technology, Guangzhou 510640, China
Qiongzhi Zhang: School of Business Administration, South China University of Technology, Guangzhou 510640, China

Sustainability, 2018, vol. 10, issue 6, 1-15

Abstract: The principal–agent leasing model consisting of one risk-neutral company and n risk-averse farmers is proposed by taking into consideration the characteristics of contract-farming and the fulfilment issues existing in the production process of agricultural products. We also discuss the optimal incentive coefficients and rents for n farmers under the two strategies of decentralization and concentration. The analysis suggests that the two division modes have no influence on the determination of the optimal effort level and the incentive coefficient of each party, and under the n farmers, the incentive coefficient given by the company to a single farmer household is not affected by the conditions of other farmer households. In terms of rent, land rent in the decentralized mode is strictly higher than land rent under the centralized mode. In the two modes of division, the total income of the company and the farmers is equal. Taking into account the randomness of the production process of agricultural products, the company will prefer to choose the centralized mode, and the farmers will tend to choose the decentralized mode in cooperation.

Keywords: “company + n farmers”; centralized mode; decentralized mode; principal–agent theory; leasing model; incentive coefficient (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2018
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