Producer Price Risk and Quality Measurement

Brent Hueth () and Ethan Ligon

American Journal of Agricultural Economics, 1999, vol. 81, issue 3, 512-524

Abstract: Risk-averse farmers in the produce industry grow a product whose market price is often quite unpredictable. Shippers or other intermediaries shield the farmer from much of this price risk; however, actual contracts between growers and shippers vary considerably across commodities in the residual price risk growers face. We hypothesize that imperfect quality measurement results in a moral hazard problem, and that price provides additional information regarding quality. As a consequence, an efficient contract does not shield growers from all idiosyncratic price risk. We examine this hypothesis for the case of fresh-market tomatoes. Copyright 1999, Oxford University Press.

Date: 1999
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Working Paper: Producer Price Risk and Quality Measurement (1998)
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