THE WELFARE EFFECTS OF BANNING TOURNAMENTS WHEN COMMITMENT IS IMPOSSIBLE: SOME RESULTS FROM THE BROILER SECTOR

Brian Roe and Steven Y. Wu

No 22151, 2003 Annual meeting, July 27-30, Montreal, Canada from American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association)

Abstract: We consider the implications of banning tournament contracts and replacing them with fixed performance standard contracts in a multi-period model where the principal cannot commit to future contract parameters. A ban cannot increase total surplus in a static model. In a dynamic model, however, a ban of tournaments can increase total surplus by mitigating the ratchet effect. Calibrating our model to published data from the broiler sector, we find that a ban on use of contemporaneous and lagged relative performance data does not improve total surplus under most circumstances but could increase total surplus in a few instances of low wealth and unitary relative risk aversion. A more enforceable, period-by-period ban is even less likely to be welfare enhancing and does not hinder the principal from redistributing a fixed compensation pool from low ability growers to high ability growers.

Keywords: Livestock; Production/Industries (search for similar items in EconPapers)
Pages: 33
Date: 2003
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:ags:aaea03:22151

DOI: 10.22004/ag.econ.22151

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