Informal-contract farming in an agriculture supply chain: a game-theoretic analysis

Shivshanker Singh Patel

International Journal of Operational Research, 2022, vol. 43, issue 1/2, 208-225

Abstract: A contract in an agriculture supply-chain under market uncertainty leads to renege. Specially, when the contract enforcement cost is not very high it is prone to collapse. In this paper, a set of game theoretical models have been employed to analyse renege of the contract farming (informal-contract). To start with a normal form game-theoretic model with pure strategies has been utilised to model the price risk of the market and determine the outcomes for the players (firm and farmer); subsequently, a mixed strategy model has been studied. Owing to incomplete information under the informal-contract, a Bayesian Nash equilibrium and mixed strategy Bayesian Nash equilibrium have also been analysed. The results have been explained with an example of tomato contract farming of Southern India. From the business standpoint the results and renegotiation framework presented in this paper can be utilised to avoid a renege and dispute in the contract farming.

Keywords: contract farming; informal contract; supply chain; Bayesian Nash equilibrium; re-negotiation. (search for similar items in EconPapers)
Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:ids:ijores:v:43:y:2022:i:1/2:p:208-225

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